Call to Duty

In its first big sale of securities since early August, the Treasury last week showed how fast interest rates are climbing. It offered $1 billion in 13-month notes paying 3 1/2%, v. 1 1/2% for short-term securities sold in August, and $2.5 billion in special 219-day bills priced to yield 3 1/4%. Only three months ago Treasury Secretary Robert Anderson sold 27-year bonds, which usually sell at a far higher rate than short-term securities, at only 3 1/4%.

What was worse than the high cost of the Treasury's latest borrowing was the fact that Secretary Anderson did not issue any bonds. He thought the market was too shaky to sell them at a reasonable price. By selling only short-term securities, he is bound to ease credit at a time when the Federal Reserve Board is trying to tighten it. Normally, most of the short-term securities sold by the Treasury are bought by commercial banks that, in turn, can use them as collateral to borrow from the Federal Reserve to make additional loans, thus increase credit all around. However the Treasury is hopeful that most of the securities will later be bought by institutions and corporations as they usually have been in the past, dry up the new inflationary credit.

The new financing brought another small drop in the Government bond market as older U.S. securities slid to bring their yields more in line with the new rates. Hopefully, the Treasury expects the market to stabilize before it is forced to raise more cash in two months. Secretary Anderson is under no illusions that his job of financing the debt will be easy. Last week, in a speech to the American Bankers Association, he pointed out a new problem he has to contend with.

Until recently, said Secretary Anderson, the Government has been able to sell huge amounts of its securities to Government trust funds such as Social Security old-age and unemployment-compensation funds. "Over the past ten years," he said, "these funds added $20 billion to their holdings of Government securities as their reserves accumulated. Currently, however, the flow is being reversed; benefits and other payments are exceeding receipts, and there will be a decline in holdings this year." Now that the Government trust funds are reducing their holdings, Secretary Anderson said that the nation's private savings institutions should take up the slack. Since June, many insurance companies, savings banks, savings and loan associations and pension funds have kept out of the Government bond market, instead have been buying higher-yielding corporate bonds or stocks as a hedge against inflation.

This, said Secretary Anderson sternly, is not the way to protect the savings deposited with these institutions. Said he: "When the great institutional holders of the nation's savings do not buy Treasury securities, the Treasury must turn to commercial banks. This means increased bank credit, a larger money supply and new inflationary pressures. To the extent that inflation results, the customers of these savings institutions are among the chief victims."

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