Evening star., 1934-07-04
BOND LIST STAGES
STRIKING UPTURN
Funds Return to Fixed In
come Field After Flight
to Equities.
BY VICTOR EUBANK.
Associated Press Financial Writer.


oped a return flow of funds into fixed
income investments, after the fight to
stocks and commodities coincident
with the 1888 currency depreciation.
Midyear finds highest grade bonds
at the highest levels since 1928, and
corporate bonds generally at the best
prices since 1881. 1t is notable that
bonds are we'll above the levels of a
year ago, While stocks are somewhat
under the average prices of last year
at this time, when a feveriSh 'inf1a-
ton" bull market was in progress
The total quoted value of all bonds
listed on the New York Stock Ex-
change is currently around 36,000,-
400 900, more than $4,000 900, 900 over
the level at the beginning of 1884, and
over $4,000 100000 above the level at
mid-1933.
Federal Issues Soar
The long-term United States Gov
hrnment issues have risen to levels
where their average yield is but little
above 234 per cent, against more than
81 per cent early this year. and
depression high of about Az per cent
a little more than two years ago. The
average yield on 100 corporation
bonds, compiled by MoOdy'S. has fallen
close to 434 per cent. from about 534
early in January and a peak two
years ago of 834 per cent. when bond
prices dragged on the cyclical bottom
With banks and investment inStitu-
tons having difficulty in finding suit
able investment media wherein they
may use their funds profltably. bond
market analysts see little prospect of
any immediate change in the char
acter of the high-grade bond market
Excess bank reserves have continued
to rise, are now we'll above 81 700
COO, and banks are getting no return
on these funds. Interest rates have
fallen so low in the shOrt-term money
market that banks and institutions
find little incentive to keep funds
there. Prices of more speculative
bonds will presumably be affected by
business trends, but they have held
up well into the Midsummer business
lun. No inf1ationary threat of a
character to provoke selling of fixed
income investments generally is fore
seen, for the near future, at least.
Scarcity Is Stressed.
Bond analysts point out that an
important factor in the low yields at
which bonds are now selling is the
actual physical scarcity of them
owing to the stagnation of the new
issue business over the past two years
Two of the largest pieces of corporate
financing ~
peared within the past week, however.
possibly indicating that corporations
will now begin to take advantage of
the favorable terms a t which long
term credit is available, particularly
since the securities act of 1888 was
somewhat clarified and slightly re-
Taxed. effective July l.
The biggest of the two issues which
appeared in the last week was $50
O0O.0 900 offering of PENNSYLVANIA Rail
road 414 per cent bonds, the largest
corporate issue to be offered publicly
since 1881. But since this was rail-
road issue and came under the pur-
view of the Interstate Commerce
Commission. it was not necessary to
file the prospectus required by the
securities act, to which there has
been so much objection, although the
isSuers become liable under certain
provisions of the act through offering
the bonds publicly. The second issue
however, which was $35. 100000 in 3
per cent three-year notes of the Edison
Electric Illuminating Co. of Boston.
and the first major public financing
by a domestic utility in three years.
was carried out under the full regu-
lationS Of the securities act.
New Financing Expected.
Investment bankers expect the de-
velopment of new financing under the
amended securities act will at best be
slow. and a good part of it may be
refunding of outstanding obligations
to take advantage of the favorable
terms now available. But they be-
lieve this financing. under the securities
act, will be limited to corporations
with capitalization and business not
too involved. so that it may be fully
described in the prospectus with fair
degree of certainty that no facts have
been omitted which might later turn
up and be regarded as material
The scarcity of high-grade invest
ment bonds has presented a real prob
lem to the banks. with their huge
excess reserves which they would like
to invest. to insurance companies and
other investment institutions whose
earnings depend largely upon the rate
of interest at which they can employ
their funds. United States Govern
ment issues and high-grade tax
exempt municipals have been quickly
snatched uD as fast as they have come
upon the market New York State
recently sold a S30000.000 issue on
the basis Of 183 per cent, the best
terms the State ever got. and the
United States Treasury has sold a 3
per cent long-term issue which imme-
diately went to a substantial premium
in contrast to the only other per
cent postwar issue, the social ID
mellon" issue, which was offered in
1881 and quickly went to discount.
Hit Low Two Years Ago.
The bond market evidently hit its
depression low two years ago in June,
ending a decline which got under way
as early as 1928, when the speculative
mania in shares began absorbing so
much credit that the money market
started to tighten up in earnest. The
1882 recovery was fairly short lived.
and prices received another downward
thrust early in 1888. when the banks
hastily sold investments to raise cash
to meet Withdrawals.
Bonds recovered sharply. along
with stocks, in the Spring and early
Summer of 1888 and a real move
ment of funds out OF bonds did not
become apparent until gold price
f1x1ng aroused int1atonary fears. Inc
market slid back during Autumn and
early Winter. but started to improve
IN December and rose vigorously IN
January. colncldent with steaoy
gold price, leading to a tentative
efabilization on January 81. at $50 an
ounce
The upswing slackened off IN Feb