Bond Compromise

A compromise bill that would give the Treasury the flexibility it needs to handle the national debt was approved last week by the House Ways & Means Committee. Engineered by Committee Chairman Wilbur Mills of Arkansas and approved by Treasury Secretary Robert Anderson, the bill would eliminate, on many issues, the 41% ceiling on long-term bonds that now hampers Government financing.

The bill provides that the ceiling may be exceeded by bond issues totaling up to 2% of the federal debt whenever the President decides that the national interest requires it. It also provides that the Treasury may 1) refund in advance of maturity some $20 billion outstanding Government securities, replace them with new long-term bonds that have virtually no restrictions on their effective interest rate; and 2) remove the 4 1/4% ceiling on savings bonds and special Treasury issues sold to such Government trust funds as Veterans Insurance and Social Security.

The President's right to raise the interest rate would allow the Treasury to breach the ceiling this year to the extent of $5 billion, carry over any unused amount into coming years. But Secretary Anderson has made it clear that he has no intention of putting out more than $1 billion or so in long-term bonds at a rate above 4 1/4%. Passage of the bill, scheduled for debate in the House this week, is virtually assured, despite strong opposition from the liberal Democratic wing. Prospects for its passage in the Senate also look promising.

The compromise bill, plus a more optimistic view of stocks in Wall Street, dampened the bond market. Bids for corporate bonds were pared up to 3/4 of a point in expectation of stronger competition from long-term Government issues. Strength was shown only by intermediate (one to five years to maturity) Government obligations; they are likely to be among the first designated by the Treasury for advance refunding.

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