Evening star., 1932-12-29
GOVERNMENT bond
DEMAND INCREASES
Investors Are Buying U. S.
Securities and Putting Money
in Savings Accounts.
ocial Dispatch to The Star,

epccal Dispatch to The Star.
NEW YORK. December 29.-The clos
Ing week of the year is developing phe-
j mena in the Investment markets and
IN the banking world that were evident
in both during the early period of the
for government securities at record
high prices and the other the heavy
inflow of funds into the savings banks
IN the large metropolitan centers.
The prices on the Liberty 3l2s and
the banks to- buy government bonds
IN order to build up their liquid assets.
This is what is known in Wall Street
vcrnacular as window dressing"
Usually it centers on short term obli-
cations, for as soon as the year-end
reports are made and published the
hanks are are disposed to sell out portion
of their government issues and put
Them to more profitable use. This
month, however, the interest seems to
be centering in the long term Treasury
notes as well as in the fourth Liberty
=. per cent bonds. 1t is in this group
that the most substantial advances
have occurred.
Gain In Bank Deposits.
The prices on the Liberty 3l2's and
on the first and fourth 4t4S have
reached a level where there is practi-
Cally no net income return on them.
The fourth Liberty 4l!4s, which may be
called after next October Is, were
quoted today at a premium of over
points. So, if these bonds are refunded
i'll 1888. the buyer at the current price
would lose the difference between this
premium and par.
The increase in deposits in the sav-
ings banks has been extraordinary.
While there has been a steady growth
in the second half of the year, most
of the gain being reported has taken
place in recent weeks. Apparently it
does not represent, as it did in Decen1-
Der, 1890, a withdrawal of funds from
commercial banks but comes from the
surplus earnings or income of depositors
who realize that their savings bank
account is the only one of their invest
mentS on which there has been no
capital depreciation during the depres-
sion Their holdings of securities and
of real estate. as we'll as of commodities,
have declined tremendously. They are
able today, however, to withdraw their
savings deposits, if they wish, at the
same value as that existing in 1929 and
on which they have realized, in the
meantime, interest ranging from AZ
per cent down to 3 per cent.
There are no indications that the In
creased deposits in the savings banks
are being drawn from boarded funds.
While the reduction in the amount OF
currency that has been sterilized by
putting it away in safe deposit vaults,
or in other assumed places of safety.
has not been increasing in the last six
months, there is no. proof that it has
been decreasing to any extent.
Safety of Principal.
a
buyer of Government securities, is more
concerned over the safety of his prin-
cipal than with the income return on
it. He buys Treasury issues at noml-
nal return in earnings. He does not
withdraw his deposit from the savings
banks, when the interest rate on it is
reduced, and seek to raise the incre-
ment by investing in the highest grade
of corporation bonds, even when they
would give him l per cent more in re-
turn This fact will probably be dem
onstrated again next year, when it is
believed that another cut in the inter-
est rate on savings deposits will be put
into effect by banks in some of the met
ropolitan centerS.
The prevailing savings bank deposit
rate in New York City and in the sur
rounding territory is 3l2 per cent. This
is also more or less standard rate
among mutual savings banks through
out the country. 1t has been adopted
by a majority of the commercial banks
which carry time deposit accounts. 1t
would not be surprising if the Spring
of 1898 saw reduction in the rate to
5 per cent in order to eqlalize the loss
in income which the savings banks have
already taken-and expect to take to
greater extent next year-from suS-
pended interest on some of their real
estate mortgages, as well as on railroad
bonds which it has been legal for them
to hold.
Copyright, 1922