BONNINGTON LUMBER COMPANY

when funds are not available at any cost. This is not currently the case. Unquestionably, there are dislocations in the credit markets.

The long-term capital markets are in disarray because neither borrowers nor investors are willing to commit themselves long under current market conditions. However, funds are available for a price in the short-term market where business borrowings at commercial banks and in the commercial paper market are running double last year's rate. Those would-be borrowers who lack the financial options to tap either the long-term or the short-term market are clearly at a strong (if temporary) disadvantage.

How much will interest rates fall in 1982? Well, for one thing, we shall not see the pell-mell retreat of rates that we saw in the spring of 1980, when the prime rate quickly dropped by almost I I percentage points and Treasury bill yields fell from l6%s/o to around 6Vzv/o. The descent will be more gradual and perhaps with a marked differential between the amounts of decline in short-term rates and long-term rates. This difference in behavior is not unusual in business cycles, but it has been suggested that long-term rates are more or less locked-in the current situation.

The market is concerned with the upward revised Treasury cash needs in fiscal 1982 and beyond. Business borrowers, now feeling themselves trapped in the short-term market, may attempt to fund their short-term debt by selling bonds when rates appear reasonable. This combined pressure could slow the descent of long-term rates but not halt it altogether. Short-term rates in the medium to higher single digit range and long-term rates of I l-13 percent seem quite attainable in 1982.