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• OARD OF GOVERNOR#
OIVmlON OF INTERNATIONAL F I N A N C E
OF THE
F E D E R A L R E S E R V E SYSTEM
November 1 7 , 1961
H .13
No. 3k
L eCAPITAL
w
MARKET DEVELOPMENTS ABROAD
Io United Kingdom
I I . Nine Charts on F i n a n c i a l Markets Abroad
I . United Kingdom:
Money and Capital Markets i n October
Continuing i n f l o w s of f o r e i g n f u n d s , two r e d u c t i o n s i n Bank r a t e ,
and "the sudden spreading of the g i l t - e d g e d f a s h i o n t o the wider i n v e s t i n g
public" made October and e a r l y November a p e r i o d of unusual a c t i v i t y i n
B r i t i s h f i n a n c i a l markets. The c a p i t a l i n f l o w induced the a u t h o r i t i e s
t o reduce Bank r a t e from 7 t o 6 - 1 / 2 per c e n t on October S and t o 6 per cent
on November 2 . By mid-October an unexpected boom i n the g i l t - e d g e d market
l e d t o general p r i c e advances a l l along t h e l i n e and t o s u b s t a n t i a l
t r a d i n g i n government bonds. The e x p e c t a t i o n t h a t market y i e l d s had
reached a peak and were t o move t o a lower l e v e l c o n t r i b u t e d t o the a c t i v i t y
in gilt-edged securities.
A general downward d r i f t i n i n t e r e s t r a t e s was e v i d e n t i n October.
The d e c l i n e s i n y i e l d s on government s e c u r i t i e s between t h e e a r l y August
peak and e a r l y November were:
Treasury f i l l s
Bonds: 6-month
3-year
li-year
War Loan
Consols
106
82
5?
30
33
"
"
"
"
"
points
Money r a t e s a l s o d e c l i n e d i n t&e p r i v a t e s e c t o r « Clearing
bank charges and d e p o s i t r a t e s were a u t o m a t i c a l l y c u t when Bank r a t e was
reduced:
Bank r a t e
Bank o v e r d r a f t s
D e p o s i t r a t e s (7-days*
notice):
Clearing banks
Discount houses
Local a u t h o r i t i e s
October 1
Nobember h
7
7-1/2 - 8-1/2
6-1/2 - 7-1/2
5
5 - 5-iA
7
U
k - U—l/U
6-1/8
NOT FOR PUBLICATION
DECONTROLLED AFTER SIX.MONTHS
6
a
NOT FOR PUBLICATION
2 «
Even with d e c l i n i n g interest rates9 hove-^er-c, c r e d i t a v a i l a b i l i t i e s
were f u r t h e r reduced in t h e period under r e t i e x c After d e c l i n i n g by
£10U m i l l i o n i n August and by £128 million i n S - :-~7£be?$ bank loans f e l l
by £30 m i l l i o n in October» Hire-purchase c r e d i t outstanding d e c l i n e d by
£12 m i l l i o n i n September and a substantial r e d u c t i o n in new c r e d i t extended
occurred» The d e c l i n e i n the Board of Trade[ s -s eas o n a l l y - a d jus t e d index
of r e t a i l sap.es from 117 i n August to 116 in September i n d i c a t e s that
c r e d i t and f i s c a l r e s t r a i n t s are now having a marked e f f e c t on almost- a l l
s e c t i o n s of r e t a i l t r a d e e
The o f f i c i a l reserve figures reveal that the inflow of foreign
funds i n October was the largest- for any month i n 10 years o Published
r e s e r v e s d e c l i n e d by £8 m i l l i o n but Britain made special repayments during
the month of a t l e a s t £120 m i l l i o n « The f o r e i g n trade figures for October
showed a r i s e i n imports and i n the trade d e f i c i t 0 On November 1 0 s a
-.Board of Trade spokesman announced i n Parliament t h a t p o s s i b l e ways of
e a s i n g i n t e r e s t r a t e s f o r exporters were under -"the most a c t i v e r e v i e w , "
A United S t a t e s Department of Commerce survey e s t i m a t e s the
current value of B r i t i s h i n d u s t r y 5 s d i r e c t investment i n the United S t a t e s
a t no l e s s than $ 2 e 2 £ b i l l i o n i n I960 compared with estimated U0S» h o l d i n g s
i n United Kingdom industry of $3»2 b i l l i o n i n 1960 o These f i g u r e s (which
are based on book and not market v a l u e ) r e v e a l the extent to which B r i t i s h
f i r m s have r e b u i l t t h e i r h o l d i n g s i n t h i s country a f t e r t h e i r s u b s t a n t i a l
wartime s a l e s of U 0 S 0 assets<, The $2 0 2 b i l l i o n f i g u r e excludes between
f $ 3 ° 7 and U»0 b i l l i o n of U 0 S 0 d o l l a r s e c u r i t i e s now h e l d by the B r i t i s h
Treasury and by p r i v a t e B r i t i s h i n v e s t o r s c B r i t i s h i n d u s t r y 8 s d i r e c t
investment i n Canada i s estimated at close to $1 0 U b i l l i o n 0
Money market-o Treasury b i l l y i e l d s d e c l i n e d r a p i d l y during
October a s domestic and f o r e i g n i n v e s t o r s competed with the d i s c o u n t
houses f o r a v a i l a b l e s u p p l i e s ( s e e Table and Chart- 2 ) 0 During t h e month s
b i l l y i e l d s d e c l i n e d f r o # 6okh per c e n t on September 29 t o 5o31 per c e n t
on November 3 ( s e e T a b l e ) i /
The b i l l houses acquired an unusually l a r g e
proportion of b i l l s a t t h e weekly tepder as the f o l l o w i n g percentages shows
Per cent
1
8
IS
22
2 9 .
48
60
59
65
39
Per c e n t
Octo 6
13
20
27
Novo 3
57
59
51
66
63
The n e t i n c e n t i v e t o hold the U„K„ b i l l a g a i n s t the U»S0 b i l l , was reduced
t o o n l y Ooll per c e n t by e a r l y November ( s e e Table)„
1 / With t h i s i s s u e theTreasurylbi11 r a t e quoted in this report is the
market s e l l i n g r a t e f o r b i l l s (as reported by U 0 S 0 eommercja" banks) and
not the weekly tender r a t e formerly usedo
NOT FOR PUBLICATION
NOT FOR PUBLICATION
During October 9 the r a t e on 3=>month Euro-dollar d e p o s i t s i n
London moved s l i g h t l y upward as f o l l o w s s
Per cent
1
8
15
22
29
3.19
3.19
3.25
3.25
3.25
Per cent
- Oct. 6
13
20
27
3.25
3.31
3.31
3.38
Per cent
Nov. 3
10
3.31
3.31
Gilt°edged market0 The g i l t - e d g e d market had a f i r m tone i n
October and market trading was a c t i v e as ( i n the words of The Economist)
"the g i l t - e d g e d bandwagon 0 .<> ^ o t / on the move" d e s p i t e e f f o r t s of the
a u t h o r i t i e s to check the d e c l i n e i n bond y i e l d s (see Table and Chart 6 ) .
This unusual a c t i v i t y produced a general d e c l i n e i n market y i e l d s as
the f o l l o w i n g y i e l d f i g u r e s shows
Bonds
6-month
3-year —
Ik-year
5l=year
War Loan
Consols
Sept. 29
6.13
6oiiU
6*61
6,76
6.75
6.53
Octo 6
5.U9
6.11
6.50
6.77
6.72
6.14.8
Opto 27
5.iii
5.83
6.10
6065
6.59
60 3U
On October 12 s the Londpn County Council offered a £10 m i l l i o n
i s s u e of a 6=1/2 per cent bond9 1?71~72 9 96=1/2 to obtain cash to redeem
a 3 per. cent s e c u r i t y with f i n a l maturity date of November 15 s 196lo
Holders of the old stock who converted a t par were o f f e r e d a £3=1/2 cash
bonus per £100o On November l s the Bpotle Corporation o f f e r e d £6 m i l l i o n
of a ^ - 1 / 2 per cent bond^ 1971-72 a t a p r i c e of £99» Holders of a £1*4/2
m i l l i o n 5 ° l / 2 per cent i s s u e maturing on December 1 3 1961 were given p r i o r
r i g h t s t o the new issue» On November 10 a the Agricultural Mortgage .
Corporation o f f e r e d a £10 m i l l i o n , 6=1/2 per cent debenture bond, 1975=1977»
at £99-1/2.
London clearing banks. Bank loans dropped further during the
four weeks ending i n mid=0<?tober although the £30 m i l l i o n d e c l i n e was
much below the combined £236 b i l l i o n reduction f p r August and September.
The banks a l s o bought £50 m i l l i o n of government bonds during the month,
mostly i n very short maturities s t h e i r f i r s t major purchases sine? mid195)8° Bank baying undoubtedly contributed t o the firm tone of the gilt-edged market i n October. Recent changes i n clearing bank f i g u r e s were als
f o l l o w s ( i n m i l l i o n s of pounds)s
NOT FOR PUBLICATION
NOT FOR PUBLICATION
Private
advance#
Investment-s_
1,921
2,193
+ 721
+ 517
- U6U
-55k
+ 1=2
= O06
~ 108
- 128
- 30
=. 2
+1 2
+ 50
+ loU
+ 0.7
Total - 1958 •= October
Annual changes:
1959 - October
I960 - October
Changes from preceding month;
August
September
October
Liquidity
ratio
.
33.2
==>
Installment c r e d i t . A decline of £12 million during September
brought t o t a l outstanding hire-purchase credit to a l e v e l of £953
million,. New credit extended i n September was sharply below the
~
August level Q Recent- end of quarter figures on installment credit (in
millions of pounds) ares
New credit extended
Repays Change i n
Total mentB_
debt
Shops
Finance
houses
Total
I960 - June
Sept*
Dec,
3#
32U
325
621
628
610
956
952
935
231
183
173
18L
187
190
+ U7
k
- 17
- March
June
Sept 0
312
306
303
622
651
650
93U
957
953
201
235
19U
202
212
198
- 1
+ 23
k
Building s o c i e t i e s 0 During the third quarter0 the net inflow
of new funds into the building s o c i e t i e s was only £26 0 million compared
with an inflow of £35 o 0 million in the second quarter 0 Results of
third-quarter operations were (in millions of pounds)s
Savings
WithNew
drawals
Lending
RepayLoans merits
Combined
assets
(end of quarter)
1960s
III
106.2
80.1
110.7
90 oil
2,390
1961s
II
III
120.5
12O0U
85.6
9U»0
110oU
III.08
93.8
101.5
2,537
2,.<03
The reduced inflow r e f l e c t e d the higher i n t e r e s t rates ci e.rec- by
competing media a f t e r the July 25 r i s e i n Bank rats o
NOT FOR PUBLICATION
NOT FOR PUBLICATION
- 5 -
The b u i l d i n g s o c i e t i e s expect t h e i r net growth i n s a v i n g s t o be
enlarged i n t h e f o u r t h q u a r t e r . E f f e c t i v e October 1 , t h e i r i n t e r e s t on
shares was r a i s e d from 3 - 1 / 2 t o 3 - 3 A P e r c e n t t a x - p a i d ( e q u i v a l e n t t o
6 - 1 / 8 per c e n t f o r minimum-bracket t a x p a y e r s ) . The two c u t s i n Bank
r a t e i n October and November w i l l reduce r e t u r n s o f f e r e d by s e v e r a l
competing s a v i n g s media.
F o r e i g n t r a d e . With an a p p r e c i a b l e r i s e i n imports, the s e a s o n a l l y
a d j u s t e d trade d e f i c i t during October was c o n s i d e r a b l y above t h e
monthly average f o r the second and t h i r d quarter of t h i s year but w e l l
below the monthly average f o r I 9 6 0 . Exports remained a t about the
r a t e s achieved e a r l i e r t h i s y e a r . Recent monthly averages of s e a s o n a l l y a d j u s t e d t r a d e f i g u r e s are ( i n m i l l i o n s of pounds):
Exports
i960
1961: I
II
III
October
Trace
balance
Re-exports
Imports
296
12
380
- 72
309
307
30?
311
12
13
15
12
389
362
358
379
- 6U
- U2
- 3U
-56
Foreign exchange r e s e r v e s . Bid t a i n ' s p u b l i s h e d r e s e r v e s d e c l i n e d
by £8 m i l l i o n t o £ 1 , 2 6 1 m i l l i o n during October. However t h e United
Kingdom r e p a i d £100 m i l l i o n to t h e I n t e r n a t i o n a l Monetary Fund, £U
m i l l i o n on an European Payments Union o b l i g a t i o n and an u n d i s c l o s e d
"small" amount to European c e n t r a l banks. With an £18 m i l l i o n o b l i g a t i o n
t o Switzerland c o n s o l i d a t e d i n t o a 3-year l o a n t h e United Kingdom has
now repaid " a l l t h e d e b t s incurred . . . under t h e B a s l e agreement,"
according t o The F i n a n c i a l Tjjmes, November 3 , 1961, page 1 . During
the month, N i g e r i a drew £11 m i l l i o n i n U.S. d o l l a r s from the United
Kingdom.
Foreign exchange market. S t e r l i n g remained i n good demand throughout October. The s p o t r a t e f l u c t u a t e d narrowly around 28l.f>0 U.S. c e n t s
and the d i s c o u n t on 3-month pounds d e c l i n e d with t h e d e c l i n e i n B r i t i s h
money r a t e s ( s e e Table and Charts 8 and 9 ) • S e c u r i t y s t e r l i n g a l s o
remained s t r o n g , t h e r a t e f l u c t u a t i n g between 280.38 and 2 8 1 . 6 3 during,
the month.
Stock market. The index of i n d u s t r i a l s t o c k p r i c e s continued i t s
p o s t - J u l y d e c l i n e e a r l y i n October but reached a bottom of 287.7 l a t e
i n the month. P r i c e s moved up s h a r p l y , however, and t h e index had r e turned t o 2 9 8 . 3 by November 9 ( s e e Table and Chart 7 ) .
B r i t i s h Commonwealth S e c t i o n .
II.
Nine Charts on F i n a n c i a l Markets Abroad
NOT FOR PUBLICATION
United Kingdoms
Date
Treasury B i l l Y i e l d s and Exchange Rates
3—mo. Treasury b i l l
, Difference
U.K.*/ U . s 3 ^
I960 - High
Low
1961 ~ High
Low
5.68
2.13
6,74
Uel7
L,95
2.08
2,52
2,16
3,63
=•0,814
Sept, 15
22
29
Oct, 6
13
20
27
Novc 3
10
6.44
6,41
6,44
6,00
5.88
5,88
5,63
5,31
5=31
2,27
2.25
2.23
2,31
2,37
2,30
2,29
2,28
2,47
a/
3/
c/
d/
e/
tj
Discount
on 3-mo.
sterling®/
Net
incentive
t o hold
.
U.K. b i l l i /
Exchange r a t e
Discount
Spot
on 3-mo.
sterling
sterling^/
1,88
2.33
(P),64
4 = 36
0,79
1.95
= ,23
1=13
-2,12
281,58
279,83
281.62
278.47
1,64
(P)»47
3»o4
0.55
4*15
ho 16
4.21
3,69
3,51
3,58
3,34
3r03
2,8k
4*12
3.95
3*89
3,45
3.25
3,00
2,78
2,73
2,73
0,03
0.21
0.32
0,24
0.26
0,58
0.56
0,30
0.11
281,28
281,31
281,43
281,48
281,56
281,62
281,56
281.41
281,51
2.90
2.78
2,72
2.43
2.29
2,11
1,96
1,92
1,92
Based cn market selling price after Friday tender,
Closing market y i e l d f o r Friday i n New York,
Spread between spot and forward r a t e i n per c e n t per annum.
Net of d i f f e r e n c e i n b i l l y i e l d l e s s d i s c o u n t on 3-month s t e r l i n g »
Spot r a t e i n New York market i n U.S. c e n t s .
Spread between spot and forward r a t e s i n U.S. c e n t s .
United Kingdoms
S e l e c t e d C a p i t a l Market Y i e l d s
3^1-year
bone#/
War
loan®/
Consols
Share
yield®/ 3 2
Share
prices#/
I960 - High
Low
1961 - High
Low
6.11
k.93
6.68
5.95
6,00
5.33
6,77
5.97
5.9k
5,53'
6.92
5,95
5.70
5.02
6.78
5.70
k.96
3.7k
5o48
k.22
lok9
0.63
1.90
0,86
228.6
29k .6
365.3
287.7
Sept , 14
21 ^
28.
Oct. 5
12
19
26
Nov. 2
9
6061
6.60
6061
6.50
6.44
6.10
6,10
6,10
6.10
6,75
6.76
6.76
6r77
6,75
6,70
6.65
6.65
6.65
6.70
6,72
6.75
6.72
6.73
6,59
6,59
6.62
6.64
6,48
6,48
6.53
6.44
6,43
6.3L
6.3k
6.35
6,36
5.1k
5.12
5.25
5.25
5,46
5.k2
5.k8
5.35
5.29
1.3k
1.36
1,28
1.19
0.97
0.92
0.86
1.00
1.07
307.3
308 .k
300.6
300.5
288.9
288.0
287.7
29k.7
298.3
'
a / 3 per cent Savings Bond 1965=75o
]b/ 5=1/2 per cent Treasury 2008=12.
••
c / 3 - 1 / 2 per c e n t War Loan (undated).
d / 2 - 1 / 2 per c e n t Consol (undated)
e / F i n a n c i a l Times.
T / D i i r e r e n c e between y i e l d on 2 - 1 / 2 per c e n t Consols and share y i e l d .
%/ F i n a n c i a l Times.
INTEREST
ARBITRAGE,
UNITED
S T A T E S / C A N A D A
Thursday figures
THREE-MONTH
TREASURY
Bill
RATES
CANADA
UNITED STATES
RATE
DIFFERENTIAL
AND
FORWARD
S P R E A D IN FAVOR Of
RATE
DIFFERENTIAL
WITH
FORWARD
CANADIAN
DOLLAR
CANADA +
EXCHANGE
COVER
NET I N C E N T I V E IN F A V O I O F C A N A D A +
INTEREST A R B I T R A G E , N E W Y O R K /
LONDON
Fr iday f i
3 -MONTH
TREASURY BILL RATES
»tw »ot«
RATE D I F F E R E N T I A L A N D
3 - M O N T H FORWARD STERLING
fMMRD-MLE
RATE D I F F E R E N T I A L W I T H
FORWARD E X C H A N G E COVER
IN FAVOR OF LONDON
IN FAVOR OF NEW YORK
INTEREST ARBITRAGE,
Friday figures
3-MONTH
GERMAN
TREASURY
3-MONTH
NEW
BILL
Y O R K / F R A N K F U R T _
RATES
INTERBANK
A N £
LOAN
RATES
GERMAN 3 - M O N T H
INTERBANK L O A N RATE
1/~\
GERMAN 3 - M O N T H
TREASURY BILLS
U.S. TREASURY BILLS
RATE
DIFFERENTIAL
AND
FORWARD
DEUTSCHE
MARK
IN F A V O R OF FRANKFURT:
1 L O A N RATE
FORWARD RATE DISCOUNT W
RATE
DIFFERENTIAL
WITH
FORWARD
EXCHANGE
COVER
NET I N C E N T I V E
I N F A V O R OF FRANKFURT ( + )
I N F A V O R O f NEW YORK ( - )
Special forward dollar rale available lo German commercial banki.
w
INTEREST A R B I T R A G E , F R A N K F U R T / L O N D O N
—
AND
LENDING
RATES
~ \ GERMAN I N T E R B A N K
GERMAN
M 7
RATE D I F F E R E N T I A L A N D
1
1
|
FORWARD
1
STERLING
S P R E A D IN F A V O R O f UNITED K I N G D O M BILLS O V E R :
*
GERMAN T R E A S U R Y BILLS
GERMAN
PREMIUM +
RATE D I F F E R E N T I A L W I T H
-
\
OR D I S C O U N T -
FORWARD
EXCHANGE
COVER
NET I N C E N T I V E OF UNITED K I N G D O M BILLS O V E R :
T R E A S U R Y BILLS
6ERMAILJNJERBANK V
t A i y BIT!
M
uA
SHORT-TERM
3 month
INTEREST
for U S dollar deposits
RATES
LONG-TERM
BOND
YIELDS
INDUSTRIAL
STOCK
INDICES
1? 58
Note:
Japan: Index ol oil slocti traded on Tokyo exchange.
M A J O R
CURRENCIES
IN
TERMS
OF
SWISS FBAKt
T H E
SPOT
U.
sT DOLLAR]
PER CENT^
Above por
-IV'
U.K. STERIIHG
„19 60j
f
1961
Below
par
Above
par
3-MONTH
FORWARD
RATES -
LONDON
QUOTATIONS
PREMIUM +
/ { G E R M A N MARK
U. S. D O l l A R
PREMIUM +
DUTCH GUILDER .
FRENCH FRANC) |
I E I G I U M FRANC
DISCOUNT-|
1960
' r\
h
@FedFRASER