Speculation Defended

With Government bonds near record lows, bond speculators have been taking much of the blame from the Government for their part in the debacle. Last week one of the biggest Wall Street dealers in Government bonds hit back with some plain talk about speculation and Government bond policies. The U.S. Treasury, said Aubrey G. Lanston, president of Aubrey G. Lanston Inc., not only encouraged speculators to come into the market by tailoring its offerings to attract them, but would have been unable to sell $26.5 billion of recent middle and long-term securities without "a good dose of speculation."

The theory behind the big Treasury refunding launched last January, said Lanston,"was that it should be set up to appeal to the rife speculation existing throughout the country that interest rates were bound to move lower." To attract speculators and investors, the Treasury issued a 3 1/2% longterm bond at par when the market yield on Government bonds was only 3^%. "This was equivalent to undercutting the market price by five whole points. Surely, the speculators weren't supposed to stand idly by."

If they had, says Lanston, the Treasury issue could not have been successful, since neither banks, institutions, nor individuals had enough cash surplus to invest in Government bonds. While some speculation may have been excessive, says Lanston, the excesses tend to be self-correcting. "I am sure that a number of speculators will not want to try again soon. Their losses were too severe."

Criticizing Treasury Secretary Robert Anderson's recent appeal to non-bank institutions to check inflation by buying Government bonds, Lanston blamed the market collapse on heavy Government deficits. "Our non-bank financial institutions could not possibly absorb more than a small increment of the annual increase in federal spending. Our non-bank institutions could not save the Government from its folly--if they wanted to."

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