Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-01
BONDS FACE COMPETITION
WITH NEW EQUITY ISSUES
History of Markets of 1929 Shows Con
vertibles Have Permanent Place i'm
Corporate Financial Structure.

expect to see in the early part of 1880
greater flow of bond issues and a re-
yersal in the proportions of bond to
stock financing. 1t is yet too early to
indicate whether corporations will re-
sort to note issues or to long maturi-
ties. This will depend somewhat on
their general credit. There are already
negotiations under way for resuming
some of the public utility refunding
schemes that were abandoned in the
Spring OF 1928, when the bond market
first began to sag under its own weight
and in response to the policy of higher
Federal Reserve rediscount rates that
was then being initiated.
Perhaps the most accurate picture
that might be drawn from the relation
between money rates and bond prices
during 1929 would deal with the fluctua-
lions in United States Government Sc
curities, in municipal issues and in rail-
road equipment trust certificates None
OF these was much affected by the stock
market liquidation or by oversupply.
All however were unsettled during the
greater part of the year by high interest
rates and equally favored by the radical
change that occurred in the money mar
Ket between the middle of November
and the end of December.
The period was an embarrassing one
for the Treasury Department, which
was compelled to pay successfully higher
rates at each maturity date, and once
ito go above the Federal Reserve redis-
count rate in establishing coupon that
would attract the banks and other buy
ers OF this type of notes. Between No
vember, 1927. and June Of this year the
rate on certificates of Indebtedness adj
Vanced from ga per cent to STA per
cent which meant that certificates were
being redeemed at a rate materially
above that on notes falling due. In
one instance they we're above any rate
on Government paper quoted since 1920.
In spite Of this, most of the new issues
sold at discount from par, and along
with them went the prices of the re-
naming United States Liberty bonds
and Federal Land Bank issues.
Money Ease Aids Treasury.
Government financing has been great
ly simplif1ed by the relaxation in inter-
est rates, which has permitted the
Treasury Department to return to the
3ls per cent rate Of two years ago,
though the emissions are not parallel,
as now interest on Government paper
Is tax exempt, in contrast to its tax
able status in 1927. In the last few
weeks the highest prices of the year
have been established on all Govern
ment papers. though corporation bonds
are still well below the high price aver
age OF last January. and success has
attended the first attempt of the Treas
ury to gather in funds through the
medium Of the discounted bill.
Approximately the same situation de-
veloped in the market for tax-exempt
municipals as in Governments. From
the very low basis of yield OF 1928 the
market experienced a depression that
was nearly as great as in the period
just after the war. This compelled
cities like New York and Chicago to
sell their revenue warrants or short
term EcteS on per cent basis, and
clo-ed the door to all long-term financ-
ing at figure that municipalities were
willing to consider. Here, again, there
has been an abrupt change, with NUM-
cipal borrowers obtaining good terms
md lorg maturitiss replacing short ones
With the program of municipal and
Government cohStructiofftiats was out
lined in Washington. there is every in
dication that the municipal market will
regain its place in the investment world
next year.
In none of the markets was there less
congestion than in that for railroad
equipment certificates for the carriers
had not been buying to any extent for
several years, and comparatively few
old bonds came into the market during
the liquidating stages of 1929. But
competition with money rates required
an adjustment here, as elsewhere, and
1T was found necessary to give the buyer
Of new trust notes a per cent return
from one-year maturities and from that
to 514 and Sic per cent for long-dated
certificates. The reduction IN interest
rates has revised the picture OF this
department of the market, and the lat
est offerings have been under per
cent on all maturities.
Institution Buying Reduced.
In bulk, the insurance companies, saw
ings banks and commercial banks absorb
the highest percentage of all bonds
available to the investment market
The immediate future of the bond mar
ket is linked up closely with them, and
1t Is handicapped considerably by the
reduced buying power of these institu-
lions, due to emergency measures dur
ing the height of the stock speculation
and in the aftermath of its collapse.
So lar as can be determined, the cor
porations. finance companies and indi-
Viduals were the largest lenders of
money on call subsequent to August l.
Banks had been conspicuous lenders up
TO that time, but the requirements of
their customers for loans on collateral
had compelled them to draw down such
loans. They are today still unable to
take much part in the bond market on
account of collateral obligations. 1t is
well known that savings banks and
mortgage companies, and equally life
insurance companies, were called upon
to make enormous advances to deposit
tors and policy holders when stocks
were breaking, and that it will require
some months for them to build up their
reserves to the point where they can
again buy bonds freely.
Judging from evidence in every quar-
ter, the small investor who had not been
in stocks prior to November bought up
to his limit when they reached what he
regarded as bargain figures. Conse-
quently he will not be in funds to any
extent for bond purchases for some
time. Then there is the permanent
between common stocks and
bonds, which has changed the entire
aspect Of the investment business
In view OF these facts, we may expect
to see in 1880 response in bond prices
to more favorable money conditions and
to limited supplies, but an absence of
the broad demand for them which dis
tinguished the latter half of 1927 and
the first half of 1923. Also is there
probable continuation of the compro-
mise between debtor and a creditor
status demanded today by investors and
recognized in the form of the converti-
BILE debenture.
(Copyr!sht. 1902
-