Evening star., 1942-01-01
Bond Prices Steady
Below Peaks Set
Early in Year
War Shakes, but Fails
To DemoroIize, Market
For Prime Issues
BY AARON NJ. JONES.
Cambridge Associates staff.

Until that fateful Sunday morn
ing in December when japanese
bombs over Pearl Harbor reused a
hitherto reluctant Nation to total
war, price movements in the bond
market were the narroWest since
1886. Even this unexpectedly early
entrance of the Nation into the Sec
ond World War did not result in any
real generalization in bond prices.
such as occurred in May, 1910, when
France was crushed.
Although the 1941 highs for most
grades and classificationS of bonds
were seen on the traditional Jan
uary rise" the subsequent trend can
only be characterized as slow, side
wise general tendency to hold just
under earlier top prices.
The prime money rate issues
Government and high-grade utility,
industrial and rail bonds-lacked in
1941 the persistent upward tendency
which has characterized preceding
years under New Deal monev man
agement towards lower and lower
yields on borrowed capital.
On the other hand. even includ-
ing the natural December reaction Of
prices to war participation, such
high-grade bonds did not reflect any
expectation of notably higher yields
on either Government or corporate
borrowings in the early future.
Utility Issues Favored.
Medium grade utility mortgage
bonds, bonds which as recently as
1885 and 1898 sold in the sos and
Cos, persistently held to prices close
to or above call prices.
Improved coverage of interest re-
quirements on such bonds has not
in most instances explained the bull
market in secondgrade utility bonds.
On the same earnings records the
common stocks of the same or SIM
liar companies have collapsed well
below the levels of 1888 and even
1885 and 1892 Rather there seems
to have been a general tendency in
194l for bondholders to switch from
second grade railroad mortgage
bonds at go into second quality
utilities mortgages at 100 or better.
However much the future may
justify such a strong preference of
investors and institutions for utility
bonds of medium follow quality, 1t
is we'll to note that, as in other
things, there have been fashions in
bonds before, and that, by and large,
strong public preference for a
certain type of class of bond has
but rarely been justified by subse-
quent performance
During the early Reconstruction"
period after World War I. foreign
bonds enjoyed a wide popularity.
England, formerly the worlds bank
er, had been fairly successful in
financing in foreign fields so that
it was natural that the United
States, suddenly become creditor
Nation, should willingly undertake,
at liberal yields, the purchase Of
obligations" of practically every
European and South American ma
ton. But the yields, though high,
did not last very long.
COnvertibles Unpopular Now.
During the Coolidge prosperity
era. about the only bond that could
be sold to the public had to have a
/ convertible feature attached. Earn
! ings protection for interest charges
was taken for granted and deben-
/ lures. if convertible. sold more read
ily than first mortgage bonds. Need
less to say, most of these bonds, II
still undefaulted, reflect in their
prices very little value for the con-
version privilege.
For a long period first mortgage
railroad bonds were considered the
safest type of institutional invest
Mountaineering the place Of prefer
ment now reserved for governments
and high-grade utilities. Today
bank examiners and legal lists
exclude all but very best railroads
from the sphere of proper institu-
tional buying.
Dame Fashion Picks Bonds.
Giving consideration to this back
ground of fashion in the bond mar
kets of the past and the rather
generally unfortunate record OF
failure to live up to advance no