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D I V I S I O N OF I N T E R N A T I O N A L F I N A N C B BOARD OF GOVERNORS No' 3 203 7 196S ' ' CAPITAL MARKET DEVELOPMENTS ABROAD I. II. III. I. United States Dollar Assets Abroad Nine Charts on Financial Markets Abroad Latest Figures Plotted in H. 13 Chart Series, 1965 U.S. Dollar Assets in Foreign Financial Centers, April-June 1965 Rates on U.S. dollar deposits in foreign financial markets fluctuated erratically between April and early July but, on balance, moved to higher levels. (See Table 1 and Chart 1.) Reflecting primarily seasonal factors, deposit rates climbed in late May substantially above their previous peak on March 12, when these markets reacted to the U.S. foreign credit restraint program. However, since early June, rates on over-30-day deposits have eased considerably, although they continue at higher levels than before the recent increase. Table 1. Euro-dollar Deposit Rates (London); Changes Between Selected Dates January-June 1965 (per cent per annum) Rate July 2, 1965 Changes from previous date May April Mar. 28 30 2 12 July 2_ 0 +.26 0 4.38 +.06 +. 19 0 4. 50 Rate Jan. 1, 1965 Jan, 22 Feb. 26 Call (2-day) 3. 75 +.25 +.06 +. 13 -.07 7-day 4.00 +. 12 +.13 +.13 -.13 30-day 4.44 -.19 +. 13 +. 50 -.38 0 +.56 -.31 4. 75 -.25 +.06 +. 4 4 -.37 4.88 0 -.12 +. 44 -.32 5. 12 90-day 4. 56 -.12 +. 12 +. 4 4 180-day 4. 69 -.13 +.13 +.43 Source: Federal Reserve Bank of New York. Euro-dollar rates have been pushed--for the first time in the eight-year history of the market-- above conventional New.York lending rates. Several factors have contributed to this rising trend: the slower rate of increase in Euro-dollar offerings (if not an actual decrease) during the first-half of the year, tightening credit conditions in some of the major foreign financial centers, and demand for credit from overseas subsidiaries of U. S. firms. At the same time the gap between rates paid on U.S. certificates of deposit and Euro-dollar rates widened to its widest point yet recorded. (See Table 2.) OFFICIAL USE ONLY (Decontrolled after 6 months) OFFICIAL USE ONLY (per cent per annum) 1 Euro-dollars over CD's 90-day Euro-$ Deposit 90-day CD Difference 180-day Euro-$ Deposit 180-day CD Difference Source: Jan. 6 Feb. 17 Mar. 10 9 6 Apr. 7 4.56 4. 15 4.50 4.20 5. 12 4.26 4. 75 4.26 .86 .49 .41 . 30 4,62 4. 25 4,62 4. 29 5.25 4. 35 5.12 4. 36 . 37 ,33 . 90 . 76 5 May 5 2 4.81 4.31 5.25 4. 34 .50 . 91 5.06 4.40 . 66 June 16 5.06 4. 30 30 4.82 4. 29 . 76 .53 5.38 4.42 5. 12 4. 38 5.00 4. 36 .96 . 74 . 64 Federal Reserve Bank of New York. According to market reports, pressure to accept shorter-term funds has greatly increased, even on the largest and most reputable banks, and the development of 2- to 3-year maturities has virtually come to a halt. Credit scrutiny has been tightened, and dealers, who have reportedly been told that they can no longer rely on their credit lines with New York banks for backup, have moved to make their positions much more liquid. This has put the greatest pressure on the over-six-month sector of the maturity range. In the London market, the supply of new dollar deposits was cut sharply in the first quarter, and indications are that total business may have been cut significantly in the second; this was due in part to withdrawals by Canadian banks and U.S. residents. U.K. banks switched U.S. dollar deposits into sterling as domestic credit conditions tightened. The net dollar liabilities of U.K. banks, vis-a-vis non-residents (that is, total dollar liabilities to foreigners less total assets) rose from $683 million at the end of 1964 to $1,126 million on March 31. During the first half of the year, the volume of dollar-denominated bonds offered in foreign markets was considerably below year-earlier levels. Most of those sold were for Scandinavian borrowers. However, many new issues are reportedly waiting to be brought out, and market circles expect more attractive coupons and selling prices. Thus far in 1965, U.S. based underwriters have participated more actively in offering dollar bonds in foreign centers; of the 10 issues sold through early July, half were offered by groups headed by New York houses compared with only 16 per cent of the issues sold in 1964. OFFICIAL USE ONLY OFFICIAL USE ONLY Foreign deposit rates for U.S. dollars continue to rise Rates reach peak in May. Increased pressures on the international loan market for U.S. dollars in May pushed rates up dramatically to their highest levels in the eight-year history of the market. Between April 30 and May 28, bid rates for dollar deposits in foreign financial centers increased sharply in all m a t u r i t i e s — f r o m 19 basis points on 7-day funds to 56 basis points on 30-day funds. (See Table 1 and Chart 1.) At these levels, they were significantly above those of the previous peak on March 12. The 180-day deposit rate was 5.44 per cent (per annum) in London (bid) on May 28, compared with 5.12 per cent on March 12; the 90-day rate 5.25 per cent, compared with 5.00; and the 30-day rate 5.06 per cent, compared with 4.88 per cent. (See Appendix: Table I.) a •.though rates on shorter-term deposits maintained their late May peaks, rates on over—30-day funds fell during June. More recently, however, they have moved up slightly. Wider differential over U.S. rates. The rapid rise in Euro-dollar deposit rates, at a time when those on time certificates of deposit in New York remained practically unchanged, greatly increased the differential between the two, For deposits of 90 days, the difference between London and New York rates rose to 91 basis points on June 2, and, on 180-day deposits, the difference increased to almost 1 percentage point, the highest yet recorded. (See Table 2.) Factors effecting Euro-dollar rates. Seasonal factors played a major role in the spurt in Euro-dollar rates in May, as the subsequent decline suggests. In addition, reduced dollar availabilities abroad and increased strain on foreign financial resources resulting from the U. S. foreign credit restraint program and more stringent credit conditions in such countries as Germany and the United Kingdom put continuing upward pressure on Euro-dollar rates throughout the spring. The over-30-day sector of the market came under particular pressure when German and Swiss banks failed to renew deposits in preparation for their end-June liquidity build-up. Canadian banks also failed to renew deposits--due in turn to the withdrawal of deposits by U.S. residents from C a n a d a — a n d , reportedly, even at times were bidding for dollars in London, an unusual reversal of their normal position in the market. Because of the window-dressing pressures in June, rates on shorter-term maturities remained firm. But, after June 1, rates on the over-30-day sector of the market declined. The abrupt late May rise in foreign dollar deposit rates followed a similar sharp rise in rates in March. But even when these short periods of sharp increases are excluded, the general trend in the level of Euro-dollar rates in the first half of 1965 has been sharply upward throughout the entire maturity range of deposits. (See Chart 1.) Between January 29 (when most rates reached OFFICIAL USE ONLY OFFICIAL USE ONLY lows following their seasonal year-end rise) and June 25, rates for every maturity of deposit rose by 38 basis points. Tighter credit conditions in the United Kingdom (although not reflected in the movement of the U.K, Treasury bill rate) and Germany and to a lesser extent in Switzerland and Canada contributed to the higher Euro-dollar rates. (See Table 3 and Charts 5 and 6„) In the United Kingdom a 7 per cent Bank Rate (lowered to 6 per cent on June 3), special deposit requirements for commercial banks, and selective credit controls have caused financial conditions to tighten. The squeeze on domestic liquidity in Germany was produced by the restrictive policies of the Bundesbank (the discount rate was increased from 3 per cent to 3-1/2 per cent in January), by the cessation of the inflow of foreign-owned funds, by the shifting of some German loan demand (formerly met by U.S. banks) to domestic sources, and by the continuing business expansion. In Switzerland, monetary tightness developed after mid-March in response to external factors: higher interest rates abroad attracted funds that had been repatriated during November and December. In addition, the foreign loan demand on Swiss banks increased. Conditions in Canadian money markets tightened considerably between March and June, reflecting a more restrictive monetary policy and the withdrawal of U.S. funds. Between the end of February and the end of April, foreign currency deposits (mostly U.S = dollars) of Canadian banks fell $637 million. This large withdrawal was met almost entirely by adjusting the banks foreign assets, i.e., drawing down dollar deposits with London banks and U.K. local authorities by about $500 million and reducing call and other short-term loans abroad by about $170 million. Deposit rate for other Euro-currencies also climb The increased pressures on Euro-dollars in the first half of the year were present throughout all sectors of the international loan market in foreign currencies.. Other foreign currency deposit rates (linked in the closely knit international money market to the dominant Euro-dollar rate primarily by the cost of forward cover against the dollar) moved upward along with the quotes on dollar deposits. (See Table 4.) However, comparison of sterling, Swiss franc, and D-mark foreign deposit rates with their "dollar-derived equivalents"!/ would seem to indicate that the 1/ Swiss franc, sterling, D-mark and other foreign currency deposits may be "derived" from dollar deposits, insured against exchange risk, by selling dollars spot for the desired foreign currency and buying them forward for the maturity of the original dollar deposit. This operation is commonly called a "swap." The cost of borrowing the foreign currency in this case is the cost of the original dollar deposit plus the cost of the forward cover. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 3. Short-term Interest Rates in Selected Financial Centers, 1965 New York 1965 - 5 - 2/ London — Frankfurt — l — l Paris - 1 Zurich 4 / 5 / Canada — Euro-$ London—/ January 8 22 3. 77 3.81 6. 44 6.41 3. 75 .4.06 4.00 3.00 3.31 3.19 3. 71 3.63 4. 50 4.44 February 5 19 3.89 3.94 6.32 6.32 3.88 3.88 4.44 3.88 3.06 3.06 3.63 3.62 4.50 4.56 March 5 19 3.93 3. 90 6.26 6.35 4.25 4.25 4. 75 3.94 3.06 3.18 3. 69 3.56 4. 75 4.88 April 2 9 16 23 30 3.91 3. 90 3.91 3. 92 3. 90 6.35 6.32 6.29 6.26 6.20 4.50 4.44 4.56 4.56 5.25 3.94 3.50 3.19 3.94 3.25 3.25. 3.25 3.25 3.52 3. 50 3.54 3.59 3. 71 4. 75 4. 75 4.82 4. 75 4.81 May 7 14 21 28 3.87 3.88 3.88 3.85 6.13 6.13 6.10 6.20 4.62 4. 75 4.62 4.50 4.56 3.75 3.62 4.69 3.38 3.44 3.44 3.50 3.73 3.72 3. 76 3.84 4.88 4.88 4. 94 5.25 June 4 11 18 25 3.82 3. 79 3. 77 3. 74 5.49 5.42 5.42 5.39 4.88 4.63 3. 62 4.62 3.62 3.69 3.69 3.89 3.88 3.87 3.85 5.12 5.00 5.00 4.88 July 2 3.80 5.36 3.83 IJ 11 a.m. Friday offer rate on 90-day Treasury bills. 2! Opening Friday offer rate on 90-day Treasury bills. 3/ 90-day interbank loan rate. 4/ 3-month deposit rate at large Zurich banks. _5/ Average of rates for the week previous to reporting date; reported on 7, 15, 23 and last day of month. 6/ Day-to-day money against private paper; average of rates on Thursday each week. _7/ Friday bid rate for 90-day U.S. dollar deposits in London. OFFICIAL USE ONLY OFFICIAL USE ONLY pressures in late May and early June were most pronounced in the Euro-dollar sector of the market. Rates on sterling and Swiss franc deposits did not rise quite as much as did their dollar-derived equivalents; furthermore, since early June, rates on Swiss franc and D-mark deposits have not eased as much as on dollars, after taking into account the cost of forward cover. (See Table 4.) Table 4. Date 1965 January 90-Day Euro-Currency Deposit Rates (per cent per annum) U.S. Dollars (London) Sterling (Paris) * Swiss Franc * D-Mark * 1 22 4.56 4.44 8,. 38 (7.28) 7,.00 (7.05) 3.50 (3.85) 3. 12 (3.26) 3. 75 (3.93) 3.38 (3.64) February 26 4.56 7., 25 (7.38) 3.25 (3.41) 4, 12 (4.31) March 12 5.00 7.. 75 (7.54) 3. 75 (3.62) 4.38 (4.27) April 2 30 4. 75 4.81 7. 75 (7.77) 7. 32 (7.14) 3. 75 (3.55) 4.25 (4.26) 4. 18 (3.98) 4. 31 (4.31) May 28 5.25 7. 50 (7.69) 5.00 (5.20) 4.56 (4.56) June 4 11 18 25 5. 12 5.00 5.00 4.88 6. 88 6. 75 7. 00 6. 69 4.88 4.94 4. 75 4.56 4.50 4.50 4.62 4.56 (6.94) (6.82) (6.96) (6.53) (4.87) (4.86) (4. 75) (4.54) (4.52) (4.36) (4.50) (4.36) * The figures in parentheses indicate the "cost of obtaining" the foreign currency deposit by borrowing U.S. dollars in the Euro-dollar market and swaping them into the foreign currency desired by buying the foreign currency spot in the exchange market and selling it forward for the maturity of the original U.S = dollar deposit. Rates on these "dollar derived" deposits may be compared with chose paid on direct foreign currency deposits in the Euro-currency market. Growth of London dollar liabilities slows in the first quarter; U.K. banks increase net dollar borrowings sharply New U.S. dollar deposits in U.K. banks by non-residents during JanuaryMarch were at their lowest level since the first quarter of 1964, when the market underwent a period of reaction to several corporate bankruptcies in which Eurodollar credits were involved appreciably. This, no doubt, reflected in part the measures taken by U.S. authorities in February to discourage the outflow of funds from the United States and in part the very rapid expansion experienced by dollar deposit business during the final half of 1964. Total U.S. dollar liabilities of banks in the United Kingdom vis-a-vis foreign residents rose only $177 million in the first quarter of 1965 compared with increases of $473 million in the third and $487 million in the fourth quarter of 1964. (See Table 5.) OFFICIAL USE ONLY OFFICIAL USE ONLY Table 5. U.K. Commerical Banks : External U.S. Dollar Claims and Liabilities (mil lion U. S. dollars) June Dec. Mar. June Sept. Dec. 1965 March End of period: Liabilities 3,010 3,002 3,097 3,419 3,892 4,379 4,556 Claims 2,783 2,870 2,817 2,937 3,220 3,696 3,430 227 132 280 482 672 683 1,126 Changes in: Liabilities 1/ +535 - 8 + 95 +322 +473 +487 +177 Claims 1/ +535 +8 7 - 53 +120 +283 +476 -266 0 -95 +148 +202 +190 + 11 +443 1964 1963 Net Liabilities Net Liabilities 1/ From end 1962. Source: Bank of England, Quarterly Bulletin. Switching from dollars into sterling. Dollar claims of commercial banks in the United Kingdom (both British and branches of foreign banks) against nonresidents, however, decreased $266 million during the January-March quarter, (See Table 5.) Consequently, U.K. banks' net liabilities in U.S. dollars vis-a-vis non-residents rose from $683 million at the end of 1964 to $1,126 million. This means that the banks converted some $443 million of dollar deposits placed with them into sterling for investment in the London money market in response to tightening credit conditions there. Until the final week of March, when the discount on the 3-month forward pound increased sharply, it was profitable to switch dollar deposits into sterling (covered with purchases of forward dollars) and put the sterling into London money market investments. (See Table 6.) Indeed, during late February and early March, -switching into sterling and investing in local authority deposits was quite profitable and probably explains the large volume of switching that actually did take place. Sources of dollar inflow. The dollar inflow into the London market in the first quarter came in small amounts, primarily from Swiss, Middle Eastern, French and Italian sources, Canadian and U.S. residents, on the other hand, drew down their dollar deposits with London banks--Canadian by the largest sum, $126 million. (See Table 7.) OFFICIAL USE ONLY OFFICIAL USE ONLY Table 6. 1965 - 8 - Comparison Between 3-month U.K. Local Authority Deposit Rates and the "Cost" of Dollar-Derived Sterling Euro-$ rate (1) Prem. on 3-mo. fwJ. v (2) Total "cost" of £ y (3) L A deposit rate V (4) Net gain (5) January 8 15 22 29 4.50 4,44 4.44 4. 50 2.61 2. 71 2. 61 2.65 7. 11 7. 15 7.05 7.15 7.18 7. 18 7.25 7. 25 .07 .03 . 20 . 10 February 5 11 19 26 4. 50 4. 50 4.56 4. 56 2. 55 2.52 2.85 2,82 7.05 7.02 7.41 7.38 7.31 7.18 7.44 7.63 . 26 . 16 .03 . 25 March 5 12 19 26 2. 15 5.00 4,88 4,88 2.78 2.54 2. 74 3.25 7.53 7.54 7.62 8. 13 7.80 7.81 7.68 7.82 .27 . 27 .06 4/(.31) 1/ The sum of (1), the rate paid per annum on 3-month Euro-$ deposits, and (2). the cost of 3-month forward dollar cover. 2/ Rate paid by U.K. local authorities for deposits. 3/ The difference between columns (4) and (3). 4/ Net loss. Placements of dollar funds. At the same time, London-resident banks made dollar placements principally in the United States. Small amounts were put in Japan and Switzerland. Withdrawals were made primarily from Italy and Germany, and to a lesser extent from France, the Netherlands and Belgium. (See Table 7.) Net borrowers and lenders to London market. U.S. residents took considerably more dollars from the London matket than they placed there during January-March. Their dollar liabilities relative to their dollar assets vis-a-vis London increased by $287 million, the largest increase since the first quarter of 1964. (See Table 8.) Much of this large flow represented the activities of London branches of U.S. banks, which borrowed substantial amounts of dollars in London to transfer to their head offices. Throughout much of the first quarter, U.S. banks borrowed (especially short-term money) in the Euro-dollar market to back up their own lending operations, which were under heavy pressure by an unseasonally large demand for loans--both domestic and foreign. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 7. U.K. Commercial Banks: External U.S. Dollar Claims and Liabilities by Country (million U. S. dollars) C End of Period: United States Italy - 9 - March 1964 June 1,072 986 L A I M S 0 Sept. Dec. N 1965 March 1,184 1,210 1,464 Change Dec. '64 Mar. '65 +254 330 350 361 454 294 -160 277 302 347 389 414 + 25 France 118 165 157 174 101 - 73 Germany 106 134 157 280 92 -188 Netherlands Belgium Switzerland 84 129 120 157 104 - 53 174 118 109 182 140 - 42 67 87 104 104 120 + 16 (79%) (80%) (80%) (% of total claims) (79%) (77%) L I A B I L I T I E S T 0 Switzerland 736 806 997 750 815 + 65 United States 319 490 493 534 501 - 33 Canada 375 470 521 739 613 -126 454 + 62 Middle East 291 339 347 392 Austria 202 199 230 221 165 - 56 Italy 92 73 134 204 255 + 51 France 73 62 118 210 274 + 64 132 67 80 70 84 + 14 Germany (70 of total liabilities) Source: (72%) (73%) (75%) Bank of England, Quarterly Bulletin. OFFICIAL USE ONLY (71%) (69%) OFFICIAL USE ONLY -10- German and Italian residents reduced their net dollar liabilities to London in the first quarter, (See W b l e 8.) Seasonal ease in domestic money markets in January and February contributed to reduced German borrowings. In addition, it is thought that some of the large outflow of funds from the U.S. preceding the restraint program probably went into Germany, reducing their need for foreign dollar credits. In Italy much easier credit conditions since mid1964 have made ample funds available to the commercial banks, which in turn have used these new resources to reduce their relatively high-cost (relative to the cost of lire funds) foreign borrowings, mainly their borrowings in the Eurodollar and other Euro-currency markets. To assist them in this operation, the Bank or Italy makes foreign exchange available to the banks on a swap basis at -no cost, With the withdrawal of $126 million of Canadian deposits during the March quarter, Switzerland became the largest net dollar depositor in London. (See j.able 8.) Swiss dollar deposits, which had been drawn down almost a quarter billion dollars during the uncertain fourth quarter of 1964, increased only slightly between January and March as continued apprehension about international monetary conditions and a very high premium on the forward Swiss franc worked to keep funds in Switzerland. Canadian withdrawals appear to have been because of, or in anticipation of,.reduced U,S. deposits in Canadian banks. French residents improved their net lending position in dollars in London considerably during the quarter--due about equally to reduced borrowings and increased deposits. And Belgium and Dutch residents switched columns--from being net borrowers to being net depositors, although their positions are very small. (See Table 8.) Long-term dollar bonds: new sales reduced in 1965 Although total international loan issues in foreign markets were up in January^-Jjun e from the volume of the year-earlier period, uncertainty about the effects of the U.S. foreign credit restraint program on the availability of dollar funds abroad dampened enthusiasm for denominating new international issues in dollars._/ The volume of ,U« S. dollar denominated bonds issued in foreign markets for non-resident borrowers was down to $172 million in the first half of the year, compared with S240 million in the same period of 1964. (See Table 9.) _2/ Increased offerings of bonds denominated in D-marks have been responsible for the growth in the international loan business -o f - r this year. According to the Economist, (April 24, 1965, p„ 441) D-mark issues in the first quarter were equivalent to $140 million, compared with only $15.4 million equivalent in the. January-March 1964 period. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 8. Major Net Borrowers and Lenders of Dollars in London ' ."'lions of U-S. dollars) Net U.S. Dollar Liabilities to London Banks Changes Net Borrowers 1964 Dec. 1963 I_ United States 411 +342 -257 +195 - 15 +287 963 Italy 338 -100 + 39 - 50 + 23 -211 39 235 + 31 + 22 + 42 + 42 + 132 -158 + 93 + +133 -202 1965 II III IV Mar. 1965 Residents of: Germany Net Lenders 10 23 395 Net U.S. Dollar Assets in London Banks Residents of: Canada 286 + 36 Switzerland 537 Middle East 264 216 - 17 —7(56) Nether!ands Belgium 1/ (123) 588 -247 + 48 694 + 45 + + 59 + 132 + 50 + 174 - + 20 0 67 389 + 31 - 23 - 45 154 11 i/+ 64 + +138 174 - 22 ~ + 2/. + 7 25 II- 28 1/. I/.+ 53 1U' + - 1/ Net liability position. 2/ Decrease in net dollar liabilities in London. 3/ Increase in net dollar liabilities in London. Source: Bank of England> Quarterly Bulletin. -109 + 98 OFFICIAL USE ONLY +218 75 - / + 10 3 - 31 + 79 + 81 42 OFFICIAL USE ONLY Table 9. U.S. Dollar Bonds: - 12 - New Issues Placed in Europe, Jan.-June 1965 Coupon Price 5.75 97.75 20 25 London 6.0 97.50 20 20 London Luxembourg 5.5 98.00 20 30 London Luxembourg 6.25 97.25 12 10 New York 5.5 98.50 20 25 London New York Allm^nna Svenska Elektriska A. B . (.ASEA) (Swedish electric company) 6.0 97.00 15 15 London Luxembourg Ce ; -orreic. isi.h-Alpi.no Montangesellschaft (Austrian-Alpine Mining C omp ( 5.75 97.00 20 12 London City of Oslo (Norway) 5.75 98.75 20 15 New York Kingdom of Denmark 6.00 99.00 20 20 New York 5.75 97.5 20 New York Borrower (%) Term Amount (yr.) ($ mil.) Listing January Sira-Kvina Kraftselskap (Norwegian power consortium) February Cassa per il Messogiorno (development fund for South Italy) March Kingdom of Norway April City of Helsinki (Finland) May Commonwealth of Australia June July Commonwealth of New Zealand TOTAT.'vni.UME: (vi.illions) Jan. -Mar. Apr. -June July-Sept. Oct.-Dec. $111.5 $128.5 $118.0 $132.0 OFFICIAL USE ONLY 20 1965 .Ta-:. • " ; Apr. ju:ie $:J $97 O F F I C I A L USE ONLY - 13 - Limited new issues. In the first quarter of the year, the foreign m a r k e t for new dollar issues was in a considerable stale of flux and the number of new issues was sparse. Several bonds reportedly in the w o r k s did not come to market or w e r e delayed. The m i d - M a r c h temporary softness in the prices of outstanding issues (traded mostly in London and L u x e m b o u r g ) w a s r e s p o n s i b l e for a rather sharp reduction in the size of the borrowing for the K i n g d o m of Norway in late March. In A p r i l and M a y , only two issues w e r e put on the market. The issue for the City of I e l s m k i (.headed by a New York house and offered early in A p r i l ; was made very attractive compared w i t h former issues w i t h a 6 - 1 / 4 per cent coupon, 12-year m a t u r i t y , and 97.25 per cent offering price. (See Table 9.) Business then picked up, and four new issues were brought to m a r k e t in June. The c o m p a r i s o n of the June City of Oslo (Norway) issue w i t h an offering m a d e nine m o n t h s ago for the same borrower indicates the extent to w h i c h costs have risen. The most recent issue--$20 m i l l i o n for 20 years — carried a c o u p o n of 5.75 per cent and was sold at 98.75 per cent. This compares w i t h a September, 1964,$ 15 m i l l i o n , 15-year offering for Oslo w i t h a c ou po n cf 5,50 per cent and an offering price of 98.81 per cent. A n issue of ?20 m i l l i o n of 5-year promissory notes was also m a d e for the R e g i e des Telegraphes et des Telephones (Belgium). These notes carried a 6 per cent rate and w e r e placed privately by a London house and could, p e r h a p s , be indicative of the borrower's d e s i r e to w a i t until a m o r e propitious time to raise long-term capital. Bond borrowers. Borrowers so far this year have been predominately Scandinavian: .tverr.ments, m u n i c i p a l i t i e s and businesses took 67 per cent of the total volume of funds raised. The government of A u s t r a l i a and the S o u t h Italy D e v e l o p m e n t Fund borrowed m o s t of the remainder. H o w e v e r , the British C o m m o n w e a l t h share of the borrowing w i l l be increased w h e n the G o v e r n m e n t of New Zealand offers a $ 2 0 m i l l i o n loan issue in early July, U n d e r w r i t i n g by U S. he us e sEuro-dollar bond activity appears to indicate a shift in the i: i t i a t i v e i o r organizing new foreign dollar bond issues from London to New X c r k underwriters. Of the 10 issues sold through early July of this year, 50 per cent h a v e been offered by underw r i t i n g groups headed by N e w Y o r k based houses, compared w i t h only 16 per cent of the issues sold in 1964. Some commentators feel that U.S. u n d e r w r i t e r s , apparently shewing m o r e aggressiveness toward this business than p r e v i o u s l y , will c o n t i n u e to enhance their p o s i t i o n in this sector of the international capital m a r k e t Bond prices ease Prices of outstanding. U.S. dollar bonds quoted in L o n d o n eased significantly in m i d - J u n e , probably r e f l e c t i n g the g e n e r a l tightening of foreign dollar availabilities as w e l l as the relatively large v o l u m e of new issues put on the market, For example, the M o r t g a g e Bank of D e n m a r k , 5-5/8 per cent bond, dropped $1.75 b e t w e e n the end of I.AL USE ONLY OFFICIAL USE ONLY x - 14 - K A y and the end of June, raising its yield to maturity about 20 basis points. Tlost of the outstanding issues are presently at prices very close to their l o w e s t prices since issue. The Japanese issues, most of which have convertible features, have been drifting lower in line with the lower stock prices in Tokyo. (See Table 10.) OFFICIAL USE ONLY Table 10. Issue 1964 1965 Gov 1 t of Denmark 5-1/2%, 1970-1984 High Low IRI 5-3/4%, 1975-1979 High Low City of Oslo 5-3/4%, 1969-1979 High Low 101. 25 99.38 103.62 102.12 100.38 97.00 109.12 112.0 103.0 101.12 Yield to maturity Price Yield to maturity Gov 1 1 of Austria 6%, 1979-1984 High Low 103.62 101. 75 Price Last Friday of: January 1965 March April May 18 June 25 101.38 99.50 101.00 100.00 99.50 100.25 Issue Mor t. Bk . Denmark 5-5/8%, 1970-1984 High Low 1964 1965 101.38 100.25 Price Last Friday of: January 1965 March April May 18 June 25 100.00 98.12 99.62 97.75 95.75 96,00 5.8 5.9 5.8 5.9 5.9 5.9 99.50 95.75 Yield to maturity 5.5 5.7 5.6 5.7 5.9 5.9 101.00 97.00 100.00 98. 75 97.25 97.50 5.3 5.7 5.4 5.5 5.6 5.6 Copenhagen Telephone 5-3/4% , 1970-1964 Low High Price 106.00 112.00 94.38 94.25 93.00 92.75 100.12 97.25 100.0 100.25 Price Yield to maturity Price 101.12 100.00 100.75 99.75 97.75 97.50 5.6 5.7 5.6 5.7 5.9 5.9 OFFICIAL USE ONLY 105.75 92.75 Yield to maturity 5.0 4. 1 6.1 6.3 6.4 6.4 Itoh 6-1/4%, 1984 Low High 102.62 102.25 Prices are bid. - 15 - Prices and Yields of Selected U.S. Dollar Bonds Traded in London 96.50 88.00 86.00 83.00 81.00 79.50 94.75 79.50 Yield to maturity 6.7 7.3 7.4 7.8 8.2 8. 3 101.25 97.75 Yield to maturity Price 5.6 5.9 5.7 5.8 5.9 5.9 100.50 97.75 99.50 98.75 97.75 97. 75 Takeda 6% 1984 High Low 105.5 107.0 98. 5 93.00 Price Yield to maturity 105.00 98.50 99.00 97.00 94.00 93.00 5.4 6.0 5.9 6.1 6.4 6.4 - Appendix: 16 - Table I Bid Rates for U.S. Dollar Deposits in London 1964 January February March April May June July Augus t September October November December 1965 January 31 28 27 24 ; 29 26 31 28 25 30 27 31 Call 3.69 3. 75 3. 81 3.69 3.75 4.00 3.88 3. 75 3.88 3.88 no market 3.88 7-day 3.81 3.88 4.00 3.81 3.88 4.31 4.00 3.88 4.00 3.94 no market 4. 12 T E R M 30-day 3.94 3.94 4.06 4.00 4. 12 4.38 4. 12 4.12 4.06 4.00 5.00 4.62 90-day 4.08 4.12 4.25 4.19 4.25 4. 38 4. 31 4.25 4.19 4.50 5.00 4.62 180-day 4.25 4.25 4.44 4.38 4.38 4.44 4.44 4.44 4.44 4. 56 5.00 4. 75 8 15 22 29 3.88 3.88 4.00 4.00 4.12 4. 12 4. 12 4.12- 4.38 4.25 4.25 4. 31 4.50 4.44 4.44 4. 50 4.62 4.62 4.56 4.56 February 5 12 19 26 4.06 4.06 4.06 4.06 4.19 4. 19 4.25 4.25 4. 31 4. 31 4.38 4.38 4.50 4.50 4.56 4.56 4.44 4.54 4.60 4 68 March 5 10 12 19 26 4.19 4.19 4.19 4.19 4.12 4.38 4.62 4.38 4. 31 4.31 4.62 5.00 4.88 4.62 4.62 4. 75 5.12 5.00 4.88 4.88 4.82 5.25 5. 12 5. 12 5.12 April 2 9 16 23 30 4.12 4.12 4.12 4. 12 4. 12 4.25 4.31 4. 31 4. 31 4.31 4. 50 4.50 4.50 4.50 4.50 4.75 4. 75 4.82 4.75 4.81 5. 12 5. 12 5.12 5.00 5.00 May 7 14 21 28 4.25 4.31 4.31 4.38 4.38 4.38 4.44 4.50 4.62 4.62 4.69 5.06 4.88 4.88 4.94 5.25 5.06 5.06 5.19 5.44 June 4 11 18 25 4.38 4.38 4.38 4.38 4.50 4.50 4.50 4.50 4.88 4.88 4.88 4.69 5. 12 5.00 5.00 4.88 5.25 5.38 5. 12 4.94 2 4.38 4.50 4. 75 4.88 5. 12 July Source: Federal Reserve Bank of New York. Cfcerl I I N T E R N A T I O N A L M O N E Y M A R K E T Y I E L D S FOR U.S. D O L L A R I N V E S T O R S 3 - M O N T H E U R O - D O L L A R D E P O S I T V S . C E R T I F I C A T E OF D E P O S I T Wednesday figures & 1 J f t - 1 Y1E 1 i iUBO-DOLUE DEPOSIT 1 1 M 1 LDS A m1 / * A Mm IXr v i ! - / X a J i , 1 Z " r^-r~~ 1 U.S. CEBTI FICATI Of DEPOSIT - 1 i : OVER ! | IF D E P O S I T 1 /\ % zVi J1 i1 Ufi 1 M > 11 1 1 1I ii ii SELECTED I N T E R N A T I O N A L M O N E Y RATES Friday figure* EUR0-30LLAR DEPOSIT BATES ( L O N D O N ) / V™ COMMERCIAL PAPER-Fully Hedged U . I . fINANCI COHPAhY •ei. JM. flar. Jrx<— ••c. \ INTIRIST Friday 3 . ARBITRAGI/ UNITED STATES / C A N A D A Per c e n t figu MONTH TREASURY BILL per i RATES UNITED STATES I I 1 i I I 1 1 1 I I RATE DIFFERENTIAL AND FORWARD CANADIAN DOLLAR SPRUD IN FAVOR OF CANADA M > w" FORWARD RATE I I I I I I I I I _3 . MONTH COVERED RATE DIFFERENTIALS (NET INCENTIVES) VOI CANADA PRIME FINANCE PAPER FAVOR U. FAVOR CANADA M j I I i I I S 0 * _L_L J S 0 I I I I I I I I I I J S D 19 6 4 W J 1**5 s D INTEREST A R B I T R A G E , NEW Y O R K / L O N D O N Prldoy figures 3 - M O N T H T R E A S U R Y BILL RATES RATE D I F F E R E N T I A L A N D 3-MONTH FORWARD STERLING SPREAD IN FAVOR Of LONDON V "V\ V 1 1 1 1 1 1 :—I 1 1— RATE D I F F E R E N T I A L W I T H F O R W A R D E X C H A N G E 1 1 COVER 1 1 1 (NET I N C E N T I V E ) IN f A V O l Of N f f f YORK 1 964 1913 INTEREST ARBITRAGE FOR GERMAN COMMERCIAL BANKS Friday figures 3 - M O N T H TREASURY EURO-DOLLAR BILLS, DEPOSIT INTERBANK RATES LENDING RATE i l AND l A V v' j LOAN BATI RATE DIFFERENTIAL AND FORWARD DEUTSCHE MARK SPREAD IN FAVOR OF FRANKFURT RATE , 1 1 1 1 DIFFERENTIAL WITH FORWARD 1 1 EXCHANGE IN FAVOR OF LONDON tURO-DOllARS 1 COVER 1 (NET 1 r INCENTIVE) 1 Chan 5 SHORT-TERM INTEREST R A T E S * | CANADA SWITZEIIAND 111$ •X" 3.month treasury bill ratal lor all countries except Japan and Switzerland (3 month deposit rale) "f* 3 month rate for U S dollar deposits in London (Average role on bonk loons and discounts) Chart i L O N G - T I R M B O N D YIBLDS V' t««i IfiS INDUSTRIAL STOCK INDICES ,,*-100 ••tie icele ISO SWITZERLAND yv- 100 11*3 * 1144 S w i l l lank Corporation Industrie! elect. * " * Japan: index of 225 induilriol mmd elfcer slack* traded on the Tokyo exchange. IflS Chart I S P O T E X C H A N G E RATES - M A J O R CURRENCIES A G A I N S T U.S. DOLLAR P. <•»' - klrl 1A ITALIA N I I I * i — \ l/l I1f \ j Ul , 1 - V \ A JiArjj\A< JAPAM SI Yl» 1 1 • i i J 1 1 $ 1 1 1 1 • ms 1 1 B 1 1 I I'M 1 1 $ i 1 » 1 I i • I 1 I 19*5 i 1 $ i 0 lelew I / I I? 3 - M O N T H F O R W A R D E X C H A N G E RATES Friday figures A G A I N S T U.S. DOLLARS | 1 PREM 1 I G E R M A N HLARK \ V - 1 1 1 11 11 1 1 A G A I N S T POUND STERLING i i DISCOUNT — 1 1 1 1 1 LONDON A G A I N S T POUND STERLING - L O N D O N v i v • FRENCH FRANC » . r ^ A/ ^ i i 1 i i T W i i i i 1 i i .3 203. July 7, i965 Latest Figures Plotted In H. 13 Chart Series , ' 965 Per cent per annum Chart 1 Upper panel (Wednesday, jUr.e 30 Chart 5 (Friday, Jaly 2 , except as noted) ) Treasury Euro-$ deposit U.S. certif. of deposit Lover panels (Friday, ,UJ,V 2 bills: U.S. 3. 80 U.K. 5- 36 Germany ) Canada -i- 30 day 30-Jay 90-day x80- day Finance Co. paper: 4 35 U.S. Canada 3. 83 Swiss 3-month deposits (Date: ) 3„ 69 Euro-$ deposit (London) 4, 88 Japan: composite rate (Date: 30 ) 7, 92 Chart 6 Hire-purchase paper, U.K. Bonds: Chart 2 (Friday, Juxy 2 Treasury bills: U.S. govt. (Wed. , A ) Canada 3- 83 U. S. Spread favor Canada Net incentive (Canada +) U.K. war loan (Thurs. , - a y 1_80 H. 0 3 Forward Canadian dollar 7 - 0 German Fed. Railway (Fri. , J - y b- 8 '9 Swiss Confederation (Fri. , :ur.b? 3 30 :-0 . 30 Canadian govt. (Wed., - 30 Chart 3 (Friday, Per cent per annum 2 Treasury bills: ) a r. i j g'.v..mier t U.K. 3. 3o U.S. 3, SO Spread favor U.K. Forward pound - 1 9 3 Net incentive (U.K. +) -C 7 For description and sources September 23, 1964. 3 of data see special annex to H. 13 Number 164,
@FedFRASER