Evening star., 1935-12-31
CHANGE IN BOND
MARKET INDICATED
BY RECORD PRICES
Buyer Faces End of Golden
Age" With Averages at
AII-Time Peaks.
BY ARTHUR H. NORRIS,

CAMBRIDGE Associates Writer, Boston.
In 1885, as in the three preceding
recovery years, the average bond buy
ing investor has had fairly easy 60
ing. Choice bargains have been avail
able in almost every section Of the
list, high income returns have been
possible at only modest risks, and
gratifying appreciation profits have
accrued at each year end.
By and large the last four years
have probably afforded the discrim-
mating buyer the best bond bargains
in history. AS the 1885 year end ap-
preached. however, both individual
and institutional buyers we're begin
ming to find the pickings pretty slim.
High-grade bonds of every kind
short and long term, corporate, NUM-
cipal and Government-were bounc-
ing of all-time high quotations and
selling at fantaStically low yields. De-
spite a large total of bond calls last
year, such hfgh-grade issues continued
to command premiums over their re-
demption prices as banks, individuals,
institutions and foreign capitalists
strove to put idle money to work at
any kind of return.
Junior List Attractive.
In the lower grades of bond hstings.
on the other hand. there were in
1885, and there still appear to re-
main for the future, opportunities for
reasonably secure commitments at
good returns with some promise Of
principal enhancement. In the rail-
road, industrial and utility groups Of
medium grade issues, careful buying
Is likely to continue to be rewarded,
providing the general trend toward
business improvement persists in 1896,
as is now anticipated.
But the purchaser of high-grade,
long-term, low coupon bonds at pres
ent levels is hardly in an enviable
position even though there is no
nearby prospect that his position will
be impaired materially.
Looking beyond the immediate
future and ignoring the express de-
termination of the national admins
tration to maintain cheap money and
low interest rates. one can safely as
sert that the present yields on long
term bonds are far lower than those
normally prevailing over long periods
of our business and national history
and that, therefore, We may expect
interest rates in the longer future to
increase from present levels to the
more normal levels prevailing in the
past.
To illustrate: An A. A. A. bond
maturing 20 years hence, bearing
coupon of 3 per cent, may today be
selling in the neighborhood of its
81 900 par as a reflection OF the
low rates for money. Now let us
assume in the next decade period of
business improvement which develops
a demand for capital at higher inter-
est rates than those now prevailing
perhaps 4 per cent. At that time the
long-term bond which at per cent
yield sold at 100 is then selling at
8612 to yield 4 per cent-reSulting
in a nearly IA per cent decline in
market value without any change in
the rating or security Of the issue in
question.
Paradox Envisaged.
Indeed, assuming prosperity ahead,
It is possible to envisage a paradox
whereby the intrinsic values-earn-
ings, assets, etc.-behind high-grade,
long term bonds greatly increase. yet
those bonds decline materially in
msrSet value.
Faced with this discomforting pros
pect, Is there no way for the per-
picked investment bond purchaser to
turn? Probably not, unless he Is
willing to compromise his long-estab-
lBhed views as to what constitutes
"safe" investment. There still remain
fairly conservative and adequately Sc
cured medium grade bonds just below
prime quality which carry convertible
privileges Of considerable potential
value.
They offer protection against both
rising interest rates and inflationary
possibilities without the necessity Of
immediately assuming. the additional
risks in common stock commitments.
For those investors and institutions
limited by statutory requirements to
investments in high-grade bonds, the
best grade of short-term paper offers
the best protection to principal and
is to be preferred, even at the lower
yield basis, to the long-term maturity.