Evening star., 1947-12-28
Reserve System Buys
u, ). Bonds Heavily
To Maintain Prices
By WiIIiom D. Horeon
\y.:..r

ASSoCl0fed
NEW YORK, Dec. 27-The Fed.
eral Reserve System, symbol o1
financial stability throughout the
world, purchased millions of dol
lars of United States Government
bonds this week to support prices
and prevent quotations from break
ing below par.
In mid-week the system, which
has maintained the Government
bond market for several months
lowered the levels at which it stooc
ready to buy all offerings. Wal
Street estimates of sales on Wed.
nesday and Friday alone (the mar
ket was closed Christmas) ranged
to as high as $1,000 900 900. 1t was
believed the system, rather than in.
dividuals and institutions, pur.
chased virtually all of the offerings
The decline in Government bonds
had immediate repercussions in the
corporate bond market. Issues OF
companies with top credit rating
as we'll as more speculative obliga-
tions, dropped in some cases to the
lowest prices in year or more
The trend continued up to the close
of the short session on Saturday.
Aimed Against Imitation.
The revision in the systems buy
ing prices appeared to be primarily
a counter-inf1ationary move. Taken
in conjunction with the recent an
nouncement by Mariner S. Eccles
chairman of the Federal Reserve
Board that the rediscount rate
would be raised in the not too dis
tant future, it appeared likely that
the Federal Reserve was embarking
on an anti-infation campaign OF
its own without waiting for con-
gressional action on several pend
ing measures aimed at combating
high prices and too easy credit.
Commercial banks, which own tre-
mendous amounts of Government
bonds, started to sell long-term
issues on an aggressive scale several
months ago. The Federal Reserve
promptly stepped in to support the
market at the price levels then
prevailing. Price-supporting pur-
chases expanded each week until,
during the week ended December
"a the Federal Reserve bought $685.
$4,000 worth of Government bonds.
This was the largest weekly total
ever reported.
spite frequent assertions by Mr..
Eccles and by Secretary Of the
Treasury Snyder to the effect that
Government bonds would not be
allowed to break par, banks conti-
nued to sell. A substantial part OF
the proceeds of these sales were
reinvested in short-term Govern
ment issues, on which the Treasury
has allowed the interest to rise to
1ls per cent for one-year paper
effective January /.
Banks Given Reinsurance.
Sources close to top policy levels
in the Federal Reserve have en-
phasized several facts regarding the
new buying policy:
The system will not allow prices
to decline any further for the fore
seeable future" and aggressive
buying will be pursued in further
ance of this policy. This may be
taken as a gesture of reinsurance
to the banks, jittery over the posi-
bility of selling such issues in the
future below par;
The new policy, incidentally, does
not have any effect on non-negoti-
able E, F and G bonds, which are
redeemable at fixed prices. Nor, OF
course, does it affect the redemption
price, or price at maturity, of any
outstanding Government issue.
The revision was taken at this
time, according to these same
sources, because the system believed
the original support levels were toe
high. It has arrived at the new
support pegs in more studied and
realistic appraisal of underlying
market trends.
Cheap money" in other words
will be marked up along with eggs
hlItter and uheot