NEW ZEALAND LOAN SUCCESS.

Auckland Star, Volume LIV, Issue 148, 23 June 1923, Page 11

NEW ZEALAND LOAN SUCCESS.

FACTORS IN ITS FLOTATION. ! THE TREND OF GILT-EDGED SECURITIES. (From Our Own Correspondent.) LONDON, May 10. The financial editor of the "Westminster Gazette," writing to-day undei the caption "New Zealand Loan Success," remarks that: — "In accordance with anticipation, tht> lists of subscription:) for the issue of £4,000,000 New Zealand Government 4 per cent inscribed etock at the price of 92 were closed yesterday morning at 10.30. The success of the loan is particu. larly noteworthy in view of the comparatively dear terms, which yielded in. interest only under 4| per cent to the investor. It has been due to the high level at which the credit of the New Zealand Government hae aiwaye stood in the city, and the fact that in many quarters, though not all, the course of gilt-edged securities in future is likely to be on 'balance upwards." What is the trend of gilt-edged securities to 'be in the near future ? Mr. J. M. Keynes, who hae long won hie epurs as a financial prophet, in making his debut this week as a director of "The Nation , ' and as its financial editor, discussed this very question at length, and 'his conclusion is that at present prices, at the present season of the year, at the present phase in the credit cycle, with present conditions in New York conversion loan, funding loan and the like are a highly speculative proposition, unsuitable for timid investors, and especially unsuitable for business which will want their money liquid if trade and prices revive. He cites the English funding loan a3 a typical investment. This loan in January, 1020, wae yielding (allowing for redemption) £5 8/. The rate rose until in January, 1921, the return was £6 2/, and since then >has fallen progressively until on the first of this month it stood at £4 6/. Lees income tax, thie only gives a return of £3 7/, a rate within a few shillings of the net yield in consols in 1913. This Mr. Keynes thinke extraordinary, in view of the vast increase of Government securities, the shortage of capital for 'housing, and the alleged diminished volume of savings. Does this fall to prewar level indicate that we are back permanently to the pre-war return of interest on new savings, or is it merely a phase of business depression out of which we are emerging, and a consequence of the low bank rate—actually only 1 per cent on deposits-*which, in Mr. Keyne's view, is not going to last for ever? Mr. Keynes answers that we have had cheap money and low rates of interest on bank deposits long enough for the public to have realised it, as is indicated by the sharp fall of £100,000,000 in deposits the last two months. A I movement like this, he says, cannot last long, and when the bank rate rises, ac it must when the banks require money to finance our now-reviving trade, this will have a direct influence on the price of long-dated securities. The strength, therefore, of the giltedged market is one to ease the money market and the low bank rate. Mr. Keynes declares that, of late, conditions in America have been about six months ahead of Great Britain, and experience of tho New York securities is not encouraging to holders of longdated securities. These in New York reached their peak last September, and have dropped 8 per cent in the interval, while English securities have risen by 8 per cent. As a result of this, London has been bi> - 'ing in New York, an explanation cf this fall in dollar exchange. Mr. Keynes, in summing up. cays: — "Xew York is anxiously watching lest tho intense business activity there should flare up into a boom, and the tendency of money with them is upwards rather than downwards. Thus the London position is highly unstable. The sterling exchange is already showing great sensitiveness, and it is unlikely that we can get through the usual autumn pressure with such a disparity of discount rates between London and New York.