Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-01

to renew its pur-
chases of investment securities.
The evidence at the end of the year
Is that while certain groups of bonds
will have broader and stronger markets,
the list as whole still faces COMPETE
ton with junior securities, and that in
| order to populariZe new issues Of the
debenture type especially, there must
be given more than an attractive rate
OF return. In other words, the convert
Idle bond has permanent place in cor
porate f1nanciaf structures from which
it will not soon be dislodged.
October Rally Nipped.
A graph of bond prices from January
to october shows a fairly steady decline
which covered an average Of between
six and one-half and seven points for
domestic issues and was a continuation
OF the trend of the second half of 1928.
Within this period the composite bond
list touched a level lower than it had
been since the end of 1925. Early in
october the market began to exhibit
strength and to reflect some transfer of
funds from the stock market and also
purchases by institutions whose port
folio OF corporations mortgages had been
allowed to run down while it was ex-
panding in the direction of real estate
mortgages. Within three weeks a rally
OF several points occurred and it began
to look as though there had been a
definite bond revival.
! Then came the first Of the severe Oc-
tober breaks in stocks. This immediately
changed the entire aspect of the invest
ment market. Prices dropped as quickly
as they had risen. Between the
23d OF october and the end of the
month the domestic average fell more
than three points. It continued to de-
cline for another two weeks, and on No
vember IA. the day after the stock panic
eliminated. reached a new low average
for the year.
To complete the story it must be
stated that as stocks rose in the second
half OF November and in December,
bonds regained their losses and by the
middle of this month stood at en- aver
age three and one-half points higher
than in November and only three points
under the January figure.
Lower Grade Issues Volatile.
Foreign bonds as a whole covered a
narrower price range during the wear
than did domestic issues, with the ex-
ceptton of limited group of South ana
Central American descriptions along
with score or more of German and
southeastern European obligations.
| While the range on domestic bonds was
between six and one-half and seven
points, that Of foreigns was only two
| and one-haf points, with the latter in
December approximating the high for
! the year, made in February.
/. However, the year in dollar bonds will
be remembered more by what happened
to the second and third grade credits
than by the comparative stability of
the firSt-grade bonds, for in no group
| OF securities, aside from speculative
stocks, were the fluctuations wider or
the markets thinner than in the latest
South and Central American credits,
which sold from Is to As points below
their issue prices and at one time were
of an average of over 20 points from
the subscription level.
The unpopularity of bonds during
1929 had nothing to do with their in
trinSic values. though 1t did relate to
some extent to what was considered by
the public as unattractive yields. Pri-
martly 1t reflected the spirit of specula-
ton and the universal demand for part
nerShip in American corporations.
Again, there was the competitive ele-
ment between bonds and money rates,
which continued from January until
the reduction took place in the Federal
reserve red1scount rates and in all
forms OF money accommodations after
stocks had been liquidated and brokers'
loans had been reduced so per cent.
Normal buyers OF bonds sold them and
either bought stocks with the proceeds
or placed their funds in call money,
where earnings for long periods were
nearly twice as high as on mortgage or
oeoenture issues that did not carry the
convertible feature.
Forced Selling Breaks Prices.
In the final break in bonds it was in
voluntary, rather than voluntary, lioui-
dation that forced prices to their low
est levels, as when institutions and in
dividualS were compelled to sell mort
cages in order to protect stock COM
mltmentS or to make loans on insur-
ance policies. Along with this there
was q certain amount Of liquidation by
those who had been out of the stock
market for the past year or two but
who entered 1t when panicky conditions
developed, and at that time provided
themselves with funds to participate in
equities through the sale of rail-
road and public utility mortgages.
The distinctive feature of the 1928
bond market was the excess of new is
sues in the first half of the year, re-
Sulting In congestion that was not re-
lleVed Tor another six or nine months.
Against this was the Subnormal condi-
ton OF the market in new offerings dur
ing the whole Of 1929, both for domestic
anu AorelBn account, out the greatest
expansion in stock financing ever wit
messed. The contrast between the flota-
ton Of fixed Understanding obligations
tnlS year and the output Of stocks by
finance companies and those Of an in
stitutional character is striking.
To illustrate: In the 10 months to
October 81, which represents a period
unaffected by market unSettlement, over
10 per cent of the new capital promoted
and offered in the American market was
IN the form of stocks. with 80 per cent