Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-09-14
BY PRESTON S. KRECKER.
special pIspatch to The Star.

NEW YORK, September 13.-An-
nouncement by the Treasury Depart
ment that it had decided to call for
redemption $1,149, 100000 of 312 per
cent Treasury notes next March Is
which would not mature until 1882, has
caused a quiet but tremendous upheaval
in the market for Government securi-
ties, which is just beginning to make
its effects visible in rising prices for va
riouS issues.
What is going on is gigantic switch
ing movement over the counter from
the 31a per cent notes that have been
called for redemption into longer term
Government securities. The holders OF
the called notes are principally banks
and big corporations. They had in
vested their funds in what they thought
was security which would run for five
years from the date of issue, in 1927.
Now they are informed that it will be
paid off in six months They suspect
the Government plans to refund the
notes into some short-term security
bearing low rate of interest. The fact
that the Treasury has just sold an issue
of IL months certificates yielding but
2ss per cent Is plain warning of what
to expect.
Doing Their Own Refunding.
f1S I'll OuICOtLlc, n ldIBc nuI0DSI VI III
veStorS in the called notes have decided
to do their own refunding now, instead
of waiting until next March. 1t is pos
sible for them to buy various long term
Government bonds which at current
prices yield the purchaser a return of
approximately 800 per cent or better.
That Is better than converting their 31a
per cent notes into some short term
note which may be sold on to "a
per cent basis next March.
Millions of 312 per cent called notes
are being liquidated every day and the
proceeds reinvested in such issues as
fourth Liberty 414S, which cannot be
called before 1888 and yield around 3.18
per cent; Treasury 4AS, which cannot
be redeemed before 1947 and return
3.29 per cent. and Treasury 334s, which
cannot be called for redemption prior
to 1910 and return about 3.19 per cent
on the investment.
Fortunately for those investors who
are liquidating, another class of inves-
tors Is in the market for exactly the
type of security which sellers of the
312 per cent notes offer. Those are
banks, corporations and individuals
seeking a short-term investment be-
cause they expect to have other use for
for a six months investment is just
about SUFFICIENT to absorb the offerings
and stabilize the price of the notes.
On the other hand the indications are
that If this switching movement con-
tinues for any length of time, those who
wait too long to refund their holdings
will be forced to pay a substantially
higher price for their long-term Gov
eminent bonds.
Higher Bond Prices Forecast.
The demand at present is converging
on Liberty 4l4s. They sold this week at
new high record prices for the year.
Other longer maturities also are rising
and promise shortly to eclipse their old
high prices.
1t is likely that the opportunity to buy
Government bonds at prices comparable
with the present will soon vanish en-
tirely. That is due to the fact that the
Government is slowly extinguishing its
debt and therefore reducing the perma-
nent supply of long-term issues.
Secretary Mellon is believed to be OPP
posed to bringing out any more long
term bonds. He favors restricting the |
maturity of even the longest to 10 years,
according to bankers in close touch with |
Washington. Fears of investors that
the refunding operation next March will |
be into a very short-term obligation |
are we'll founded March IS, |
1881, Is al open date with the Treasury. |