Evening star., 1952-01-02
freeing U. 5. Bond,
Drops Prices, Raises
Yields Of All Issues
By D. A. Williams
Associated Press Finaneiol Writer

NEW YORK, Jan. 2.-Aban-
donment of fixed minimum price
pegs for long-term government
bonds topped 1851 developments
in the bond market and invest
ment fields.
The anti-inflationary action by
the Federal Reserve Board last
March 8 was part of an accord
reached by the Reserve Board
and the Treasury on government
monetary policy. It had a pro-
found effect.
It brought return of a virtual
free market in government bonds
l-bellwether for the nations cor
porate finance structure-for the
first time in more than a decade.
Prices of all kinds of bonds fell
with a resultant increase in yields.
Corporations needing additional
capital to finance plant expan-
sion were forced to pay more
money-higher interest rates -
for new borrowings because of
the higher returns yielded by
securities already on the market.
u. S. Bonds Slump.
A temporary bottom was
reached in June when govern
ment bond prices were of as
much as 4 points from levels
prevailing before the unpegging.
And average interest rates COM
manded by top-grade new cor
porate offerings increased from
about 2.75 per cent to about
$50 per cent. At these levels
investment demand appeared
which brought some net recovery
in prices until about the middle
of December.
An increase at that time Of "a
per cent to q 3 per cent level in
the interest rate for prime COM
mercial paper produced another
decline in the governments. At
one time the key longest term
government bonds ineligible for
purchase by commercial banks
the 21a per cent issues Of June
and December 1972-67 - touched
their all time lows Of 95 24/32 bid,
more than 4 points below par
U00). Some price improvement
developed in the last few days
of the year.
The net result for the year.
however, can be demonstrated by
a look at the movement Of these
two issues during the year.
At the beginning Of 1851. they
were bid at about 100 24/32, repre-
senting a yield of about 2.44 per
cent.
At the end Of December they
were bid at about SO 2/32, off
nearly four points from par. The
bid prices represented a yield Of
about 2.75 per cent, an increase
of 81 of / per cent since the
first of the year.
Pattern Prevails.
The same general pattern pre-
vailed in corporate and tax-exempt
issues.
Rails, as usual, were the most
active of the corporates. And
their movements followed gener-
ally the trend of the governments.
The Associated Press average of
20 rails stood at 92.1 at the end
of December, down ST. from the
98.8 figure at the beginning of
1881.
The unpegging Of the govern
ment bonds and the institution by
voluntary and compulsory credit
restrictions combined to make
money harder to get.
The mortgage field became
tight. Although interest rates in
the corporate field rose, the Vet
Grams Administration and the Fed
eral Housing Administration held
their line on existing rates for
VA and FHA loans.
The higher cost for new bor-
rowings led many corporations to
turn to equity financing - new
stock issues-rather than to debt
security operations - bond is
sues - to finance expansion.
A total of 1923 common stock
issues valued at about $500 million
was issued during the first IL
months Of 1861 compared with 24S
issues worth about $477 million
during the like period Of 1850.
Bond issues in the 1851 period
were up to 181 from 174 during
the comparable 1850 period but
the dollar value decreased to
slightly under 50 billion from more
than $2.3 billion in the first II