Turning Points in Business Cycles

By Leonard P. Ayres | Go to book overview

APPENDIX D
BOND PRICES

From the beginning of 1831 to the end of 1856 the bond prices shown in Column 2 of Table 9 are an original series compiled for this book. Month by month prices were found for state bonds of New York, Ohio, and Kentucky, and yields to maturity were found for each bond in each month. Simple unweighted averages were computed for each month and these average yields were capitalized at 4.14 percent. This rate of capitalization is too low for these bonds, which almost throughout had coupons of six percent in the cases of the Ohio and Kentucky issues, and of five percent for the New York bonds.

Capitalization at the rate of 4.14 percent was decided upon in order to have the combined series match in price level with the Macaulay series, which was used beginning in 1857. The resulting prices obtained by this capitalization are lower than the actual average prices of the state bonds, but closely similar to the prices of the better rail and canal bonds of the period. The original sources from which the prices were compiled were the files of Nile's Register, Hunt's Merchants' Magazine, the Bankers' Magazine, the Shipping and Commercial List (New York), and in a few instances the daily sales slips of the New York Stock Exchange.

Beginning in 1857 the series is based on the carefully compiled yield data for high grade rail bonds compiled by Dr. Frederick R. Macaulay, and presented in Table 10 of his book on "The Movements of Interest Rates, Bond Yields, and Stock Prices in the United States Since 1856," published by the National Bureau of Economic Research in 1938. The unadjusted bond yields in Dr. Macaulay's table were multiplied by a progressively changing multiplier that was obtained by finding the percents that the average of the actual yields of the bonds were each January of the unadjusted yields. In January of 1857 the multiplier was .84 and this was progressively increased until it was 1.00 in December of 1908, after which the unadjusted yields were used unchanged to the end of 1933.

The new series of bond yields so obtained were capitalized at changing coupon rates that were obtained by finding the average coupon rates of the bonds used by Dr. Macaulay in compiling his index. The average

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