Evening star., 1932-03-27
INVESTMENT BOND
PRICES UNSETTLED
Treasury May Be Forced to
Borrow Billion to Cover
Deficit.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, March 26.-The bond
market at the close of the week was in
a somewhat uncertain frame of mind.
The defeat of the sales tax proposal in
Washington by a large majority left the
Treasury with three courses for raising
funds to cover its deficit. 1t may bor-
row, it may rely on increased income
taxes, or it may receive aid from some
new tax to be adopted by Congress.
The market is certain that part of
the deficit at least. possibly 81 900, 600, 900
or even more, will be covered by bor-
rowing, but it has had that probability
to face for some time. 1t has also been
accepted that income taxes will be in
creased and that inheritance taxes will
be adjusted to even higher levels. The
certainty of the latter, following defeat
of the sales tax, brought a sudden
though brief squirt in tax-exempt Sc
curitieS-Governments and municipals.
Tax-Exempt Issues.
Most Government bonds are not en-
tirely tax-exempt-that Is, incomes de-
rived from them are exempt from taxes
only to a limited extent, about S5,000
But there are three issues outstanding
which are entirely exempt from all
taxes imposed by the Federal, State or
municipal governments, except inherit
ance taxes. These are Liberty 31ss,
which are callable in June but not at
all likely to be called, and Panama 3S
and conversion IS of 1946-1947. AL
though news of the defeat of the sales
tax came on Thursday after the close
of the market, counter trading in these
three issues established new high prices
for the year within 20 minutes. But
the supply of these bonds is strictly
limited
1t was in the municipal list that the
best Improvement was noted. These
bonds are entirely exempt from all save
| estate taxes. 1t is to municipals, SO
lately in disfavor, that the vast invest
ing public, whether individual or COR
! porate, is turning to escape the higher
| income taxes. An astute banking syn
dicate picked up a sizable issue of
Thursday afternoon at a cost to
the State of 425 per cent. This
compares with a recent market for
| California bonds of ATS per cent. On
the basis OF per cent 60-year bond
this means price appreciation of about
9 points in the short period of six
weeks.
These are only four of dozens Of rep
reSentative municipal obligations that
had similar advances. Undoubtedly
unless some new incident disturbs the
present trend of the municipal market
there will come a situation similar to
that in 1880 when high-grade NUM-
cipals SOLD at prices comparing favor
ably with United States Treasury de-
ScriptionS
New Bond Issues.
For three weeks now the new issue
market has been gathering momentum
and it is perhaps significant of the
above factors that the majority of new
bonds have been municipals. This
weeks total Of S26,106,O00 in new bonds
was entirely of that nature.
Meanwhile the general railroad and
industrial list has been playing tag
with itself. UtteranceS from the head
quarters of the Reconstruction Finance
Corporation have not yet made it def
mite that certain railroad bond maturi-
ties will be met and in the absence OF
any improvement in business and the
basic indices affecting bonds, prices
have pursued erratic courses. The ex-
tremely volatile issues, of course, have
followed the movements of stocks
which have been somewhat heavy.
In the foreign department Germany'S
credit situation was again attracting
most attention. An eventual morato-
rum of some sort seems to be eX-
pected, if the absurdly low quotations
for two important German government
issues that are due this year are g
gauge South American issues have
had AZ tendency TO fall off, especially
the Argentine group. These have beer
affected by the lack of any assurance
that near term maturities in notes helC
mere will be cared for, but as the weel
ended these matters were reported set
tied and the bonds frmed.
(Copyright, 1922
DCnIINTIOMC IM HhDITkI