Evening star., 1933-08-06
BOND PRICES EASE
.. IN QUIET TRADING
Averages Stay Above Recent
J Lows and New Issues
Draw Attention.
BY BYRON SELLER.


NEW YORK. August 5.-The bond
market was slightly less active this
week and prices eased. though the
averages did not drop to the level Of
two weeks ago, when share selling de-
pressed couponed issues. Speculative
rails, industrials, gilt-edged rails and
rlblic utilities had the largest declines,
in order named
The new issue market, rather than
trading in outstanding securities. over
shadowed other investment develop
ments. Prospective investors paid much
attention to new Government financing,
both here and abroad, as corporate
capital fotations remained negligible.
While Canada was floating its first
Dominion government loan in London
since the war. an operation that was
a huge success and the French govern
ment was raising an international loan,
the United States Government, which
is the worlds greatest lending and
spending institution in the world, Of
fered $500 900 900 of eight-year 3A per
cent bonds and $3.50 900, of is per
cent tWo-year notes.
The success of the August Is Treas
ury financing indicated by heavy over
subscriptions rapid closing Of the books,
and premiums quoted on the new issues
on when-iSsued basis, caused experts
in this type of security to predict that
the Treasury would attempt some sort
OF conversion loan offer either next
month or in October.
First Offered Since 1881.
This was the first time since Sep
telnher 2, 1881, that an issue other
than notes or certificates had been used
by the Treasury in its financing pro-
gram. On the last occasion $500 ,0OO,-
900 of per cent 24-year bonds, due
1876, were offered. They were
oyersubscribed only by S140,599 $40. a
very small margin, and because they
were priced out of line with the then
prevalent money and investment mar
ket conditions soon sold at discount.
These Treasury IS, usually referred to
as Mellon IS" in Wall Street. reached
a record low of 1928 by January II,
1882. They are regarded as the issue
most sensitive to money and invest
ment conditions today, so their relative
drmneSs this week was encouraging.
As a result of the present eight-year
issue, which is a medium rather than
a long term issue-the latter classical
tion being given only to bonds running
for more than 20 years-it is probable
that the Treasury will try to clear up
some Of the numerous short-term ennis
sions. It's success in this direction
may depend on what imitation steps
are employed.
Outside of Government or semi-of1cial
circles, none in Wall Street ventures to
predict what imitation steps the Gov
eminent might attempt, the general
feeling being that anything might be
done" Furthermore, banker, broker,
bond dealer and trader are equally at
sea as to what effect the lowering of
the gold content Of the dollar would
have on bonds.
Inf1ation's Effect Cited.
Logically, imitation lifts commodity
prices and thereby reduces purchasing
power of holders of fixed income
securities. which therefore should sell
of. If the gold content Of the dollar
is cut by so per cent, the market value
of United States Government bonds
should drop so per cent. All bankers
and dealers concede this, but they do
not so predict because the Government,
If it is to carry out the hugest peace
time spending project the world has
ever witnessed, must have funds and
may maintain Government bond values
by having the Federal Reserve banks
purchase such issues or take some other
step.
It is orthodox for bond prices to de-
cline at the first mention of imitation.
Spectators, however, have driven bonds
to higher levels despite inflationary
proposals. They realized that recent
banking legislation made it possible to
borrow on most bonds more readily
than ever before, that banks and in
surance companies with huge frozen
assets would have to be thaWed out and
therefore rising bond market would
be encouraged, and that bond prices
were subnormal when the imitation talk
started. The present apparent excep-
tion does not change or vitiate financial
rules wrought out of centuries of finan-
cial wisdom.
Banks and institutions today are the
largest holders of United States Gov
eminent securities, but the Treasury
plans to reach this owning group by
appealing to small investors. 1t is not
likely that it would sponsor any inf1a-
ton steps, without some offsetting
arrangements. that would hinder its
task of providing funds for the national
recovery program.
Conversion Likely.
The $535, 1882 900 of First Liberty Loan
414s are redeemable on December Is,
1888, if notice is given September Is.
In view Of the success of the British
government in appealing to the pa
triotism of its citizens to convert higher
yielding bonds into lower interest bear
ing issues, thus cutting taxes, it is likely
the American Government will make
similar attempt next month.
There are outstanding 1892, PIT $50
of Liberty 3l2s. which are redeemable
December Is if notice is given by
September Is, but in view of their
coupon rate they are not likely to be
called. The Government, however, could
save interest charges by converting the
Sc, 268, ,095.250 of outstanding Fourth
Liberty 4As, which may be redeemed
IN whole or part on April Is, 1884, If
notice is given by October Is, 1888. In
view Of the Treasury's needs, Wall Street
believes as much conversion will be
undertaken as market conditions seem
to warrant.