Flop

When the Federal Reserve Board launched its tight-money policy, it knew that it would cause trouble for the U.S. Treasury. The money squeeze was bound to force the Treasury to boost interest rates on Government bonds. But the Treasury hardly anticipated the extent of the tight-money troubles that faced it last week. Fortnight ago it announced the refinancing of $4.2 billion in Treasury notes. It offered investors (about half of them corporations) a choice of taking 3 1/2% certificates due in eleven months or 3 5/8% notes due in 1962. The new interest rates, highest offered by the Treasury since the 1933 bank holiday, were calcu-ated to revive lagging interest in Treasury issues.

Investors refused to bite; the issue was a flop. Last week the Treasury revealed that $1,167,000,000 worth of the maturing notes were turned in for cash, the biggest percentage rate for any Treasury issue in six years. Furthermore, investors showed an overwhelming preference for the short-term certificates, thus foreshadowing further Treasury trouble in floating long-term issues.

The Treasury alibied that many of the maturing notes were held by corporations that need cash to meet their June 15 tax payments. But the fact is that many corporations feel that they can invest their money at better returns in non-Government securities. If the Treasury hopes to carry off its refinancing program successfully--and $28.5 billion in short-term notes will become due this year--it will probably have to boost its interest rates. In any case, it can expect little help from the Federal Reserve Board. In accordance with its independent policy, the Fed did not lift a finger to buy notes in support of the Treasury's floundering new issue.

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