Evening star., 1937-01-31
PREDICTED
IN INTEREST RATES
AS BONDS DECLINE
Investment Market Already
Displays Symptoms of
Coming Change.
BY CHARLES F. SPEARE.

Special Dispatch to The Star.
NEW YORK, January 30.-The
outlook for the money market and,
with it, the market for high-grade
bonds, has received much atten-
ton during the week due to the
System.
It was apparent that more than
the domestic money situation was
being discussed. The French franc
and Swiss currency has been fall
ing. Reports Of a second devalua-
ton Of the franc were about. These,
Finance Minister Auriol denied. On
Thursday of this week, the Bank Of
France raised its discount rate from
2 to 4 per cent, the same method fire.
quently used in 1885 and in 1886
when its gold holdings were drain
ing on.
French Got Loan. --s-
Announcement also was made OF
a $250, ,000, 900 loan by England to
France to support the franc, leading
to the belief that the 10000, ,000, 900
franc sterilization fund, set up last
September, had been exhausted.
Since that month, over 5000, ,000,-
900 gold has been received in this
country from Europe, most Of it from
London, but rejecting the uncertain
position Of the French economy. What
to do with all this gold is the pressing
problem Of the Federal Reserve au-
thorities. The importations represent
investment of securities and of gold
sent here for safe keeping. The Gov
eminent cannot check the immigra-
tion Of the metal, as 1t has the surplus
populations Of Italy, Germany and
the Slavic countries to this part of
the world. 1t must, however, erect
some sort of barrier against its effect
on excess banking reserves. That is
what 1t Is now attempting to do.
Increased Rates Expected.
The expectation is that this will
result in higher interest rates. II
rates advance. prices, of Government,
municipal and corporation bonds will
decline. They already have given
symptoms Of a coming change. The
first was in the Treasury list. Then
came a rather sharp break in mu-
nicipals. One late 1886 bond dropped,
on the closing Of the syndicate, from
104 to 991a. Bid prices on others
were sharply reduced. In the group
Of corporate loans, which were fioated
in the second half of last year, on
3. 81 and 3a per cent coupons, the
reaction ran from 2 to over points.
Long-established rail bonds were
of an average of 2 points from the
high of the month; second-grade rails
even more. Public utilities held better,
another illustration that investors In
power and light securities. as a whole.
are more influenced by the remarkable
production of their companies and
their net earnings than by the threats
Of destruction by Government COM
petition. For instance, the holding
company which has most at stake
in the Tennessee Valley has just re-
ported, for 1886, a 40 per cent increase
in net income and a surplus, after
its preferred dividend, 10 times greater
than in 1885.
Shorter Maturities Favored.
The probable trend Of new cor
poration finance this year will be,
first, toward shorter maturities, say
10 to is years, compared with the
present average of 80 to IS years, and
the instrument Of the convertible bond
to meet speculative requirements and
to Offset the resistance by private in
vestors to low coupon paper. Two
examples Of this came to hand this