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OIVBMON O F I N T E R N A T I O N A L F I N A N C E
,
-
'
w.H
—
BOA MO O F • O V I H N O M
OF THE ' '
FEDIRAI. R H M V B avSTBM
"''-I
CAPITAL MARKET DEVELOPMENTS ABROAD
Canada:
Money and Capital Markets During March
ril 3, 1961
During March bill yields remained at end of February levels but
interest rates on short-term bonds moved up sharply following a new Government of Canada short-term issue. Yields on longer maturity bonds moved up
more slowly. Yields on all Government securities were considerably above the
lows of mid-February. Foreign interest in Canadian Treasury bills picked
up as Canadian and U.S. bill yields continued to diverge and the spread
favoring the Canadian bill reached about 1.0 per cent on March 23. Stock
prices continued to rise through the month and trading activity on the
Canadian exchanges increased.
A new §275 million short-term Governor' t of Canada issue tended \
to dominate the capital market during March. The chartered banks bought
sizeable amounts but public interest was lacking. A substantial increase in
Treasury cash needs in 1961-62 is.now expected. During March, the money
supply increased further»
Money market. After declining sharply from early December to midFebruary and then recovering in late February, Canadian short-term interest
rates were unchanged in March. The average yield on the Jr-month Treasury
bill on March 23, was 3.28 per cent, only 7 basis points above the 3.21 per
cent level of March 3, but U2 basis points above the 2.86 per cent of
February 16. The average yield on the 6-month bill was 3.Wi per cent at endMarch compared with 3.U3 per cent early in the month and 3.1$ per cent in
mid-February. Recent changes in yields (in per cent per annum) were:
3-months
bill
Dec.
Feb.
Mar.
Mar.
1
16
2
23
3.95
2.86
3.21
3.28
Change
during
period
—
1-1.09
. 0.35
0.07
6-months
bill
^Change
during
period
U.07
3.15
3.U3
3.UU
-0.92
0.28
0.01
The chartered banks sold $36 million of bills to improve their
liquidity- during the first 22 days of March, and the public bought $30
. million (see Table). The major part of this shift took place late in March
when the chartered banks improved their cash ratio, from the 8.0 per cent
minimum to 8.1 per cent on March 23. The Bank of Canada holdings declined
§U7 million, mostly during the week of March 16 when(outstanding Treasury
bills we.re reduced by 550 million,
The spread of the Canadian 3-month bill over the U.S. bill widened
throughout March and was at 0.79#on March 30 (see Table) . With fluctuations
in the forward Canadian dollar rate, the net incentive in favor of the
Canadian bill was around O.8I4. to 0.8? per cent during most of the month (see Table). Changes in the net incentive'since early October (in per cent
per annum) are:
Spread
over U.S.
Dec.
Jan.
Feb.
Feb.
Mar.
Mar.
Forward exchange
discount (-),
premium ( + ) as
per cent per annum
+1.62
+1.07
+0.82
+0.U8
+0.67
+0.99 *
1
5
2
16
2
23
Net
incentive on
covered basis
-0.U3"
-O.UU
-0.25
-0.06
-0.06
-0.12
+1.19
+O.63
+0.57
+0.U2
+0.61
+0.87
The Canadian press reports substantial foreign interest in Treasury bills
&t these yields.
"
Bond market. Yields rose in the bond market in March, especially
in the short and .intermediate maturities. This was the sector of the market aJ
fected by the $275 million short-term Canadian Qovernment offering, in early
March. At March 23, the level of yields was comparable with yields in
mid-January, as the following table shows (in per cent per annum):
Maturity
Oct. 1962
Sept. 1965
Jan. 1975-78
Sept. 1983
Dec..1
Jan. 12
3.81
k.%
5.U0
5.U7
3.60
1.67
5.29
5.28
Feb. 23
3.07
U.U7
5.07
5.09
Mar. 23
Change during
last period
3.61
U.79
5-18
5.28
+0.57
+0.32
+0.11
+0.19
The spread between yields on comparable Canadian and United States
securities widened somewhat during the month, especially in the shorter
maturities. Changes in spreads between comparable Canadian and United States
securities (in per cent) were as follows :
Feb. 23
91-day bill
182-day bill
8-year bond
.20-year bond
'35-year bond
-
0.57
0.65
0.95
1.30
1.50
Mar. 23
0.99
O.96
O.98
1.36
1.U5
Change during
period
+0.U2
+0.31
+0.03
+0.06
-0.05
Substantial shifts in the Bank of Canada's portfolio occurred in
March, probably in connection with the Treasury offering. Its bond holdings
rose by $120 million, $1*2 million in under-2-year and $78 million in over2-year maturities. Chartered bank holdings increased by $50 million in
March but the general public holdings by only $6 million.
Ames and Co. estimates of new issues of securities show an increase
in March of offerings of the Government of Canada and municipal securities
but declines in those of provinces and corporations. New issues (in millions
of Canadian dollars) were:
Jan. 1-30
1. Government of Canada:
Direct
'
Guaranteed
Total
Less short-term
Long-term issues
Feb.- 1-27
630
0
630
U80
150
h70
0
U70
U80
- 10
Feb. 27Mar. 20
635
0
"535
360
M
2. Other issues:
Provincial-direct
-guaranteed
Municipal
Corporation
Total
65
51
20
23
w
20
100
1U
U7
151
0
6
67
29
15?
3. Net long-term issues
309
171
377
Sales of $6 million in the United States market was reported.
The hew $275 million Canadian Government issue, in early March
consisted of two maturities; $175 million of 3-1/2 per cent noncallable
bonds due December 15, 1962, priced at 99. UO to yield 3.86 per cent, and
$100 of U per cent noncallable bonds due May 1, 1961;, priced at 98*75, to
yield It .1*3 per cent to maturity. About $75 million of the total went to
the market. The Bank of Canada agreed beforehand to take $175 million of
the new issue on an exchange for 1961 bonds and 1-year Treasury bills. In
addition, the Bank stood ready to purchase $25 million of the $100 million
which was- offered for cash. According to the press, the Bank did purchasex
$25 million.
The. new issue is a further step in the debt-management policy,
announcedrin the latter part of i960, of more frequent and shorter-term
offerings. The Government stated that further refunding will be announced
in April for the $300 million maturity of May 1, 1961.
Major non-Government offerings in March included:
- H Amount
mill, of
Can. $'s ,,
Coupon
(percent)
Province of Saskatchewan
Catholic School Comm.
10.0
2.7
5-1/2
5-i/U - $-1/2
Montreal Catholic School Comm.
City of Lachine
10.5
Municipality of Toronto
City of Winnipeg
Canadian Breweries
Imperial Investment Corp., Ltd.
3U.0
3.5
20.0
6:0
5-1/2
( 5-i/L '
( 5-3/lt
5-i/U - 5-1/2
5-1/2 - 5 - 3 A
5-1/2
3.5
.
—
Maturity
1981
(1962-71
(1972-81
1971 & 1981
1962-71
1972-81
10-30 yrs.
10-20 yrs.
1986
1971
Price
99.186
97.675
100 & 97.05
99.079
99.079
99.832
96.50
— •
In mid-March the Australian Government floated a $20 million,
5-3/U per cent, 20-year bond in Canada, priced at 98-1/2, to yield 5.88 per
cent. This is the second borrowing by Australia in the Canadian market, the
first such borrowing took place in 1955.
Canadian security transactions abroad in I960. Canadian statistics
show that the foreign capital inflow has dried up since mid-1960• There
was almost no net inflow in the third quarter and a net outflow of $85
million in the fourth quarter. For the year as a whole, foreigners bought
$218 million of net securities compared with between $600 and $750 million
per year in the preceding four years. On a net basis, U.S. security
purchases dropped from $U69 million in 1959 to $218 million in I960. Between July and December, there was a net outflow of $31 million from security
sales between Canada and the U.S.
Government cash requirements. For the new fiscal year beginning
April 1, the Canadian Government should double its cash- requirements,
according to estimates of the Canadian Tax Foundation. The Foundation has
estimated a deficit of $700 million for 1961-62 compared with about $300
million for 1960-61; a $12 million surplus had been expected. With the
cash requirements of $700 million and $1.U billion of maturing debt, total
needs of about $2.0 billion are expected, compared with less than $1 billion
in the current year. The large deficits largely reflect falling revenues.
Money supply and general bank loans. The money supply, excluding
Government deposits, rose $ 1 # million during the first 15 days of March.
This increase follows a rise of $120 million in the January-February period
when seasonal cash needs usually decline.
General bank loans -seasonally adjusted showed little change in
the early weeks of March after a rise of $37 million in February. Aside
from the $Ul million decline in loans in January, there has been continued
expansion since March I960. Total loans outstanding, seasonally adjusted,
exceeded $5.1 billion at beginning March compared with the previous high of
just over $5 billion in August 1959.
- 5 Stock exchange. Industrial stock prices continued to rise through
March and on March 22 the indices on the Toronto and Mbnjbreal exchanges
were from 1 to 2.5 per cent above the levels of March
compared with a
rise of about 1.5 per cent in the Standard & Poor industrial index. This
rise in stock prices has been continuous since late September and prices
are now about 16 per cent above the levels which then prevailed#
. '•
Toronto
1961
High
Low
Sept. 26
Oct. 21
Nov. 11
Dec. 16
Jan. 20
Feb. 17
Mar. 1
Mar. 17
532.9k
U72.38
U79.75
1*86.06
U99.88
* 510.9U
,
5U0.63
5U6.25
550.63
559.75
Montreal
320.0
258.5
263.6
261.1
266.3
269.6
292.1
295.3
,
297.1 307.1 '
New York
Standard &
65.00
55.3k
56.OU
56.li 3
59.39
60.70
63.U6
65.60
. 67.09
68.1,2
; There was a noticeable rise in the volume of/activity 6n the
Canadian exchanges in March, as noted in the table below. The average
weekly amounts sold in March was $10.8 million compared with $9.8 million
in February.
Week
ending
Feb. 3
10
17
2h /
Mar. 3
10
17
2U
Millions of
Canadian $'s
9.76U
9.193
9.756
10.206
11,051
9.UU9
ll.7t5
10.913
. The Montreal exchange has recently instituted a monthly investment
plan patterned after the New York Stock Exchange plan. While there continues
to be some question as to the practicality of such a plan in Montreal
because of the lower volume of sales, the plan has been accepted largely
to offset the effects of a similar plan in Montreal by an American investment house, whereby Canadians are able to purchase by monthly installment
but only on the New York Exchange, thus diverting business from the Canadian
exchanges.
^
- 6 -
Foreign exchange. There- was some strengthening o" the Canadian
dollar in early March from 101.U8U {.U.S. cents) on March 1 Lo 101.719
( '.S. cents) on March 9, but in late March the rate fe.. L btilow 101
closed at 101.109 on March 30. The forward rate on Canadian dollar snowed
a small discount in late March under U".a influence of the increasing spread
of the Canadian bill yield over the U.S. yield.
F '•
British Commonwealth Section
- 7 -
Selected Canadian Money Market and Related Data
3-mo. Treas. bills
Canada
^ . Spread
£/
U.S«ty over U.S.
1960 - High
Low
1961 - High
Low
5.1h
1.68
3.3U
2.86
U.53
5.10
2.5U
2,17
1.62
-0.82
1.07
Mar. 2
9
16
23
30
3.21
3.21
3.16
3.28
3.21
2.5U
2.13
2.33
2.29
2.h?
0.67
0.78
0.83
. 0.99
o.uc
;
on?
Canadian dollar
Snot
3-mo. discount l-L
z/
forward r w i w ( + W
105.27
100.33
101.50
100.17
—
' —
—
101.50
101.72
101.25
100.91
101.U8
100.71
101.27
100.88
.101.11
101.09
•Nat-incent i n to
hold Can.
mitS/
0.99
-0.91
0.06
-0.50
1,99
-0:57
0.89
0.L2
-0.06
0.06
0.06
-0.12
-0.09
0.61
0.8U
0.89
0.87
0.70
%/ Composite market yield for the U.S. Treasury bill on Thursday close of business,
o/ In U.S. oents.
2 / Spread between spot rate and 3-month forward Canadian dollar on Thursday
closing, expressed as per pent per annum.
e/ Spread over U.S. Treasury bill (ooluea 3), plus 3-month forward discount or
premium (column 6).
Selected Government of Canada Security Yields
6-mo. Treas. b i n s
Spread
Canada
i
SSL
i
l
Intermediate
bonds (8 yr.)
Spread
I960 - High
Low
1961 - High
Low
Mar. 2
9
16
23
y
P/
bill
o/
<y
e/
tj
d
y
Long-term bonds
Spread
spread
u%5/
5.33
1.99
3.63
3.15
1.37
-0.86
1.15
0.58
5.55
k.09
U.73
lt.63
1.11
0.21
i.ok
0.78
"3.L3
• 3.1*1
. 3.3U
3 .bh
0.69
0.91
0.85
0.96
. 5.66
1*.65
lt.66
h.70
0.99
1.01
0.97
0.98
5.U2
1.36
0.85
5.28
U.68
L.63
5.19
5.06
1.37
1.29
5.23
5.0%
5.06
1.30
5.06
5.06
5*09
5.16
1.31
. 1.30
1.36
5.0U
5.50
5.07
Average yield at weekly tender on Thursday.
Spread between Canadian auction rate and oo^oeite market yield of U.S.
on close of business Thursday.
Government of Canada 2-3/b per cent of June 1967-68.
Spread over U.S. Government 2-1/2 per cent of 1963-68.
Government of Canada 3 - l A per cent of October 1979.
Spread over U.S. Government 3-lA per cent of 1978-83.
Government of Canada 3 - 3 A per cent of September 1996 - March 1998. j
Spread over U.S. Government of 1995#
1.61
0.95
1.59
1.37
1.U8
1.U9
1.U6
1.U5
Canada: Changes in Distribution of Holdings of Canadian
Government Direct and Guaranteed Securities
(millions of Canadian dollars, par value)
Bank of Canada
Treas.
Bonds
bills
1960-April_
May " '•
^ - June
July
Aug.
Sept.
Oct.
Nov.
Dec.
196l-Jan.
Feb.
Mar.
Sourcei
Government
Total
+- 69
+ 23
+ lU
- 9
-.71*. . ' + 77
+ 19
+ Uo
- 23
+ 3U
2
-U3
+ 66
+ 6
+ 1
- 8
+ 9
. - 8
Ul
- 38
^68
- 7
+120
17
Chartered banks
Treas.
bills
Bonds
- 9
- 8
- Uo
+ Si
+ 78
+ 6
+. 37
+ 15
- 87
+ 15
- 96
- 25
- Uo
+ 78
-59
- 3
+ 36
+ 90
- 5U
- U
-17
+111
+ 67
- 36
General public
Savings Treas.
bonds
bills
Bonds
- h .
+ 9
+ 27
- 28
- 12
+ U5
+126
+ 29
- 3b
- 37
+ 88
+ 50
- 26
-29
- 31
- 19
-26
- lU
- 5
+630
- 32
- 2
- 6
- 18
+
+
+
1197
8
58
U2
Ul
0
55
12
U6
26
30
+
+
+
+
+
+
30
18
U6
5U
80
36
7C
U6
78
23
39
6
Bank of Canada, Weekly Financial Statistics#
Selected Canadian Financial Statistics
(in millions of Canadian dollars or per cent)
v
1. Money supplys
Currency and deposits
Less: Govt, deposits
Equals: privately held
c
hange in period
2. General bank loan5^/
Change in period ;
.3. Total. Govt = securities:
Of which 5 Treas „ bills
Bonds
Savings bonds
•u. New security issues^/
-Of which sold in ILSo
Dec.
End of month
Jan.
Feb.
' End of week
Mar. ti
Mar. 15
13,811
5ii8
13,263
+ 123
13,763
35k
13,409
+ 1U6
13,798
U15
13,383
26
. 13,773
388
13,385 +
2
" 5,117
+
90
5,076
Ul
5,113
+
37
5,027
+
2U
17.760
1,985
12,179
3,596
1,311
-lU
17,239
1,985
12,161
' 3,U93
788
1
17,729
1,985
12,160
3,581
661
U
17,726
17,825
1,985
1,935
12;160
12,309
3,581 ' . 3 , 5 8 1
* U21
165
0
0
13,88U
357
13,527
+ 1U2
5o Chartered bank liquidityf
Cash reserve
1,017
1,027
1,016
1,001
1,009
Cash ratio
8.2
8.2
8.1
8.0
8.1
Liquid assets
2,282
2,222
2,093
2,189
2,28U
Liquid asset ratio
16.8,
18.2
17.U
. 18.3
18.3
a/ Seasonally adjusted.
—
'
- ™
: '
; '
b/ Sources A. E. Ames & Co., Ltd. (Includes public and private securities.)
Mar. 25
17,816
1,935
12,309
3,572
. 151
6
1,013
8.1
2,258
18.2
CANADA
THREE-MONTH
RATE
TREASURY
DIFFERENTIAL
AN*
-
UNITED
STATES
BILL R A T E S
FORWARD
CANADIAN
SPREAD IN FAVOR Of CANADA
DOLLAR
+
w
/V
RATE
DIFFERENTIAL
WITH
FORWARD
EXCHANGE- COVER
NET INCENTIVE IN FAVOR O F CANADA
M
S
$
I
INTEREST ARBITRAGE,
Friday
figures
3-MONTH
NEW
YORK
/
LONDON
„
TREASURY
.
Per
BILL R A T E S
/W
RATE D I F F E R E N T I A L A N D
3-MONTH
FORWARD
RATE D I F F E R E N T I A L W I T H
FORWARD
EXCHANGE
STERLING
COVER
S
cent
per
annum
\0
@FedFRASER