Evening star., 1942-11-08
Disappointing Sales
OF Treasury Issues
Studied Closely
Terms Lacked Appeal,
Added to Congestion,
Bonk Suggests l..
BY FRANK MacMILLEN,
ASS ciated Press Financial Writer.

BY FRANK MacMILLEN,
ASS ciated Press Financial Writer.
NEW YORK, Nov. IA subject
OF consuming interest in investment
and banking circles these days Is the
lessons to be learned from the
Treasury's record-breaking four-bil-
lion-dollar financing last month
which barely squeaked by with an
overscription of 2H2 per cent.
While all the bonds were sold, such
narrow margin by which orders
exceeded the amount issued makes
the operation, in Wall Street Ian
guage, a technical failure"
The discussion about 1t has been
largely by experts and in specialized
financial surveys, but the great prob
lem Of financing the war is so i'm
portant that it is of general interest
and concern.
Final allotments on the issues were
$2,140, 100000 of ~ per cent notes
due in a little more than 4 years
December Is, 1886 and 81 ,961 ,0O0,-
600 of bonds bearing a 2 per cent
coupon and maturing in 7 to 9 years.
Why the Difference?
The question involved, of course, is
why these issues were barely over
subscribed when the general rule
for several years, and even since the
heavy war financing began, has been
total orders for 30 to so per cent
more above the amounts of bonds Of
fered.
Even the subscriptions obtained
were to the accompaniment of the
heaviest buying in the Government
bond market by the Federal Reserve
Banks in the history of the system
for similar period of time.
In three weeks during and follow
ing the issue, the IL Reserve banks,
which are charged by law with
maintaining an orderly market" in
Government bonds, bought more
than three-quarters of billion dol
lars of Government securities.
Most of these purchases are be-
lieved by experts to have been not
in the new issues, but in already out
standing ones. Nevertheless, they
made it possible for commercial
banks to buy corresponding amounts
of the new issues, even if they sold
old ones to do it.
What happened, then, to the
Treasury's estimate of what the
market was ripe for in its biggest
wartime issue?
Bank Letter Quoted.
The letter" of the National City
Bank of New York tells the story as
it sees it:
why the disappointing results of
the latest financing? This question
should be examined frankly with a
view to determining so far as pos
sible what the governing conditions
were, and of bringing about clearer
understanding of the problem.
There is, of course, not the slight
est difference of opinion that all
the money the Treasury needs must
be supplied.
With respect to the latest financ-
ing the following factors appear to
have been influential in the out
come:
Il. Huge increases in the volume
of Treasury financing have come
rather suddenly on the banks and
market, and they have not yet ad-
justed themselves fully to all the
nor has there been a
complete understanding of the
Treasury's program. ="
20. Leaving the subscription books
open only two days gave the Victory
Fund Committees (regional COM
mittees of bankers and financial
men cooperating with the Treasury
in placing new bond issues) insult
f1cient time to do their work and
was too short for many investors to
get in their orders.
Earlier Issues Available.
"3. There were certain technical
considerations. The offering, which
was of record size, included bonds
in the general maturity range in
which three large issues had already
been placed this year-$1 ,000, 900 900
of seven to nine year Is in January,
81 SOC, 100000 in May and $780,
000, 900 in July, all of which were
available in the market at the time
of the new issues at but a small
fraction above par.
Not only was the new bond put
in the general range where there
was already some congestion, but
the maturity both of the bond and
the note was stretched beyond the
range which the market expected
and felt would have been a fair
yield d-and-maturity relationship.
In other words, neither issue was
made attractive marketwise
That attractive marketwise"
phrase appears to be the heart of
the matter, other experts agree.
Later in October, the Treasury
offered $4,000 ,0O0, 900 issue of Ger
tificates of indebtedness, at q of l
per cent for one year, which was
WlOc1y OVcI cI.SuUSCllDcu, Will lIldlly
non-banking investors also taking
sizable chunks.
Treasury Must Choose.
The letter concludes:
"The question of real Importance
would seem not whether on
any given issue the Treasury can
shave "a of l per cent. but rather
whether by paying higher rate the
Treasury can get more anti-inf1a-
tionary money"
Money borrowed directly from
and other non banking
investors takes purchasing power
from the lenders without swelling
bank deposits, and so subtracts from
the spending power of the people at
a time when goods are scarce except
for war. 1t is therefore considered
non-inflationary.D
1T is entirely possible" the Re-
view continues, "for the financing
program to fail even though every
dotation Is technically success.
.