Evening star., 1950-01-01

Cdoy ll1OllCy POilCy OCCul1Cu dllIlOol
on the line separating the first
and last halves of the year.
U. S. Treasury securities. mu-
nicipal bonds, rails and utilities
among the corporates and real
estate bonds started an immediate
climb that had them lowering
around the 1949 peaks at the
years end. Yet between January
/ and midyear these groups either
were tending downward or were
static.
Continued Rise Expected.
Financial circles believe most
categories of bonds will continue
the climb, at least through the
first half of the new year. This
is the same period for which
some economic observers have
predicted boom conditions for
business and industry.
| If these predictions come true
and the Government decides in
flationary factors again are at
work, the Federal Reserve may
make a further policy switch.
Some of its operations in the past
few weeks have furnished the
slightest hint it is ready to work
away from cheap money" If
necessary.
Until last June % the Federal
Reserve had been selling substan-
tial amounts of Treasury bonds
from its own holdings. This was
an anti-inflation move since in
making Treasury bonds easily OBJ
tainable, it held their prices down
and, conversely. buoyed up the
interest yield rates.
The business recession that
started in the spring, however,
caused the Federal Reserve to re-
verse its field. In a new anti
deflation move. the. Reserve an
nounced June % it would gauge
its future control over Treasury
bond prices chiefly with regard to
the ease with which businessmen
could obtain bank loans.
This meant the system would
be much less free in selling its
own supplies of Treasury bonds.
In Tightening up the available
supply. Government bond prices
would rise and yields would drop.
Bond Prices Boosted.
In one respect the plan worked.
Government bond prices began to
rise and, except for one or two
short setbacks, carried the
rise through to the end Of the
year. The proof lay in the fact
that on December 81, 1948, the
yield on bonds not due or callable
in less than Is years was 2.42 per
cent. At the current year end
it is below 2.20 per cent.
The high price of Government
issues siphoned off some of the
demand into tax exempt municipal
bonds and then to corporates.
starting with the higher. grade
issues and working down later
into the medium and low priced
issues.
Rails, for instance. were in a
deep slump from February l to
midyear. Then started a steep
summer rise that continued
through mid-August. Prices
leveled OF in the fall, then started
climbing even more steeply
December /.
Many corporations found they
could get lower interest rates by
selling securities than by borrow
ing from the banks. Corporate
bond fiotations were sold at in
creasingly higher prices. A climax
to this trend came in November
when new bonds Of q Wisconsin
utility were offered at a price
that would bring a yield of 2.58
per cent, a new low for the mar
ket's 1s49 phase Of falling yields.
Supply Smaller in 1949.
The trend to higher prices
along new corporate offerings was
helped by q faltering supply of
bonds. Corporate bond financing
in l949 totaled $2,124,261 900, a
Is per cent drop under 194s's
81, 1923 ,451 300. Refunding Of
utility and railroad bonds may
boost the total in 1850.
In municipal financing. how
ever, 1s49 ran well ahead of 194s
and may go even higher next year.
Voters in the November elections
approved State. county and NUM-
cipal bond issues amounting to
81 ,35o, 900 900, most Of which will
come to market in 1850. Long
and short-term municipal debt
financing jumped to $4.192. .069, 800
in 1949 from $3,994.461 900 in
1948.
With the national debt stand
ing at $257, ,000, ,o00. 900 and the in
terest cost on this debt making
up 13 per cent of the Federal bud
get, insurance men and other in
stitutional investors hold out lit
tie hope Of being offered q new
Treasury bond issue In 1850. 1t
| is evident the Treasury will con-
tinue for some time to hold down
interest costs by using the shorter
term, lower paying bills, certifi-
Gates and notes for funds to run
the Government and the country