Which way the market? The gloom that prevailed from the prior week influenced the market Monday and Tuesday as prices of bonds moved lower.
On Wednesday, for various reasons, long Treasuries rose 3 1/2 points, faltered and then gave up 2 points of their gains. When the Treasury announced that $2 billion in 30-year bonds would be included in the November refunding, long Treasuries fell another 1 3/8 points, off three eights of a point on the day.
New issues were attractively priced during the week. The 30-year Mt. States Telephone triple A issue sold quickly at 11 1/4 percent as did the single A Atlanta Gas Light Co. at 12 3/4 percent.
The Treasury sold a 2-year note with an average return of 12.66 percent. And the Farm Credit Bank sold 6-month paper to return 14.40 percent and 9-month paper at 14.35 percent.
The municipal area saw long Log Angeles airport revenues return 8 1/2 percent. A California water revenue issue needed the Thursday evening rally to sell out.
It is interesting to examine the bond markets during the 1929 crash and to compare them with current happenings.
One similarity was the great use of credit. In 1929 credit especially was used to speculate in the stock market when only a 5 1/2 percent margin was required to purchase equities.
In today's inflationary environment credit is used extensively to purchase material items like real estate, cars and gold.
The U.S. budget was in balance all through the 1930's while it has not been in balance through the 1970s.
In significant conclusion from the budget comparison shows that inflation was no problem in 1929. But it is the main problem in 1979.
One common problem is confusion. When the stock market collapsed in 1929 people were dumbstruck and sought fixed income investments for safety. Consequently the bond market rallied during the last quarter of 1929 as funds flowed in.
Four to 6-month commercial paper went from 6.25 percent in October to 5.00 percent in December of 1929. Three to 6-month Treasury bills went from 4.37 to 3.03 percent during the same period as money sought the safety on Treasuries.
Long Treasuries fell from 3.61 to 3.36 percent while triple A corporates fell from 4.77 to 4.67 percent. All this while the stock market was in a shambles.
Today, we have confusion, but for different reasons and it is especially the bond markets that have been in disarray.
The Treasury announced a three-issue refunding that will be offered this week. A 3 1/2-year note in minimum denmoniations of $5,000 will be offered on Tuesday.
Wednesday will see a 10-year note offered in minimums of $1,000. And the 30-year bond will be offered on Thursday in as small a size as $1,000.
Price guesstimates on the 3 1/2-year would be 11.30-40 percent. On the 10-year 10.60-70 percent and finally 10-10 1/8 percent on the 30-year.