The Bond Boom

Corporations and local governments are in the midst of the biggest bond-selling campaign in U.S. history. Some financial men had worried that the unprecedented non-Government demand for long-term money, added to the Treasury's huge needs, might soon outrun the supply. But by all signs last week, there was no cause to worry. Investors bought more than $400 million worth of private and local debt issues, one of the largest single week's totals on record.

There was just enough pinch in the money supply to keep interest rates high, but there seemed to be no shortage of buyers if the price was right. And despite the flood of new private issues, Government bonds provided their own surprise: they rose to the highest point since spring. Since higher prices spelled lower yields and cheaper money, it meant that the tight-money market had actually loosened up a bit.

Some of the buying was by investors who had sold their stocks and wanted to invest conservatively until they decided how the market would go. But much of the buying also came from those who thought interest rates were about at their peak and that they would not get as good a return in the future. There was a growing feeling that the big worldwide bogey was no longer inflation, but deflation.*

Despite the quick bond sales, it was a buyer's market, and big lenders drove some hard bargains. Before they would buy, 15 big institutional investors (mostly insurance companies) demanded that the Arkansas Louisiana Gas Co. agree not to try to refund a $35 million issue at a lower rate for the next ten years. The SEC, which usually opposes, in principle, such provisions to freeze current high-interest rates into an issue for long periods, let the clause stand, only because it thought Arkansas Louisiana probably could not have got the money without it. But the clause was a tacit admission by the lenders that they believed money would become cheaper.

* As if to confirm that sort of thinking, the Bank of England (followed by the Bank of France) proceeded to loosen up credit by lowering its discount rate, bellwether of all British sterling-area money rates, from 4% to 3 1/2%.

This file is automatically generated by a robot program, so reader's discretion is required.