LOANS FROM U S.A.

Hokitika Guardian, 10 August 1928, Page 1

LOANS FROM U S.A.

A I'STRALTA’S 4* PEIT CENT.

Australian Press Assn.—United Sendee

NEW YORK, Aug. S.

Reports from London, during June

and again in July, that probably a quarter of a million sterling of the Commonwealth 4-i per cent, loan, floated in New York in May last was being sold in London and anywhere around for 89, and that the funds were being used to purchase the same flotation in New York at 84, or a little higher, have caused considerable interest here, hut well-informed men in 'Wall Street have found it difficult to explain, and they have even expressed their scepticism that this was so. These Wall Street experts, when shown an Australian comment that “the Commonwealth credit was being hawked about,’’ have declared that this was an unmerited slur upon the American method of handling foreign bond flotations. They declare that the situation is ; extremely complex, and it involves matters of foreign exchange, which are not yet clearly understood by the hankers. It is pointed out that when the intense money stringency struck the New Zealand financial market early in Juno, bringing the cal! rate to ton per cent, it had naturally a depressing effect on the bond market, making it dull ail'd irregular-, and it carried virtually all the issues down. 'lt is interesting to note that the American bonds suffered more than the foreign and'Australian issues, including the four and a-hnlf per cent. Australian loan. These felt the effect of the stringency, lmt the Australian loan stock never went below eightysix and three-quarters, and it has never im Aiinerica reached 84 as reported from London. Sterling exchange, however, lias reached as high a.s 488 cents to £l, and it is possible that shrewd speculators keeping n close watch on both the London and the New York markets, saw the possibility of quick turnovers by taking advantage of the sterling premium and the depressed price of the four and a-halfs in New York, blit this could not have lasted long, particularly since sterling fell to 48> cents and the four a-halfs in New York quickly recovered to 88L It isdeclared that it was believed that Australia always recognised the differences between the New York and the London methods. Now York is frankly an open market. A flotation made here to-day may to-morrmv find its way in the greater part into the European market's, and notably to those of Amsterdam and London. The bankers here frankly admit that they cannot prevent it. The experts, however, are inclined to ask questions as to the Australian position relative u> the four and a-halfs. They insist that these bonds are good, and are recognised as such hero, and that they will continue to rise as soon its the money stringency ends, the date of which, however,. they are not prepared to set. They ask, nevertheless why the Commonwealth’s Sinking Fund cannot be utilised to purchase these bonds here whenever the discount on their price would make the transaction profitable. They, moreover, point out that the bankers, in certain flotations, undertake to support the price of the bonds which they underwrite, by buying in the open market up to 10 per cent, off the flotation if the securities drop below a certain figure. The experts ask whether, in the ease of the Australian four and a-halfs, the Commonwealth had made any such arrangement.-'-