Full text of H.16 Capital Market Developments : August 29, 1956
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fct for, .Publication , S C 0 m 0 U S D tftt SIX MONTHS August 29, 1956 H.ll* - I . t CAPITAL MARKET DEVELOPMENTS Large public security offerings issued for new capital during the •week ending August 2 It totaled $133 million for corporations and $13 million for State and local governments. This week, just before the Labor Day weekend, only One corporate and one municipal issue are scheduled. Rights expire on a $19 million corporate debenture issue and a $12 million tax-exempt offering is scheduled for sale. - Bond yields - Yields on all types of outstanding bonds rose sharply to new highs for the ye_r last week. The increase was particularly sharp for yields on high-grade issues. Offering yields on new issues also continue to increase. The recent Chicago, Illinois Park District offering of A-rated general obligation bonds provides an opportunity to compare this issue with a siirilar offering made in May last year. Each issue has an average maturity of 11 1/3 years, with the longest maturity running to 20 years. Information concerning these two Chicago issues is summarized below. Date Amount of issue Net Interest Cost . Yield on 20 year maturity ($ million) . (Avg. for all maturities) UJew Issue Outstanding 1/ May 2^, 1955 Aug. 28, 1956 • 1/ 6.0 12.0 2.21 3.25 2.30 3.15 2.55 3.0lt As measured by Moody's A municipal bond yield averages. Net costs to the borrower increased, over this 15 month period,by 10it basis points while the reoffering yield on the longest maturity increased only 85 points. Yields on comparable outstanding issues rose only b9 basis points in this period, The widening spread between borrowers* cost, reoffering yield and the return on existing securities may re£letift underwriters1 reaction to the difficulties of marketing new securities in a period of rapidly changing interest rates. Stock prices - Stock prices, as measured by the SEC index of 265 common stocks, declined sharply last week, closing at 286.7 on August 2b. Daily figures through Wednesday of this week indicate a further decline in prices, vdth the daily indexes back to early July levels. Trading volume also declined the first three days of this week - reaching a six month low. State and Local Government Security Offerings in the Second Quarter 1956 Purpose of Issue New bond issues amounting to $1.6 billion were offered by State and local governments during the second quarter of 1956, As can be seen in Table 1, this represents the largest-second quarter volume for any recent year except 195k, when the heavy turnpike financing contributed to the unusually large volume of issues by both States and special authorities. Turnpike flotations this year have been much less than in the peak years of 1952 and 195b, and are down considerable from 1955* Of the 1956 second quarter total, only $lU million was for refunding purposes; the remainder represented new capital, tiie most important purposes for which the new money was intended were school construction ($39l| million), miscellaneous public service enterprises (#2^5 million, of which the Grant County, Washington,Public Utility District accounted for $166 million), and sewer and water facilities ($213 million). As noted above, new financing for highways, bridges and tunnels was low (Sl59 million); issues to finance the building of residential housing (tflll* million) were also moderately lower than during the three preceding second quarters. Type of Issuer When securities floated during the second quarter are classified according to issuing unit, special authorities accounted for the largest volume, . Authorities -.offered;mors 'than one.-tjaird* of all issues of . 1500,000 or more. . Municipalities-. issued 31%, -and school districts- ac^ousted for,.an additional- 20#. Offerings amounting to at least §5O0-,OOO ,by each'of;vthese issuing^units exceeded comparable flotations- during the second quarter of 1955. On the other- hand, offerings ty Statesand counties were small and substantially less than the previous year. Type of Issue Two-thirds of the long-term securities issued by State and local governments during the second quarter of 1956 were general obligations; 33$ were 1 "Revenue bonds. Although turnpike financing, which is customarily through revenue *'issues, fell sharply this year, one large utility bond flotation kept the proportbn of revenue to total issues about the same as in 1955 second-quarter financing. This, however, was considerably below the 1952 and 195b proportions, when revenue bonds made up b0% and kl% respectively of all new issues. The importance of revenue bonds as a method of financing capital expenditures varied widely according to the type of issuing authority and the purpose of the issue. As can be seen from Table 2, special authorities derived 6.1(.% of their new long-term capital from revenue bonds whereas school districts relied on general obligations for 98% of their funds In terms of the purpose for which the borrowing was intended, it can be noted that revenue bond financing provided the bulk of the funds for industrial buildings (a minor item), for miscellaneous public service enterprises, and for ports and airports. Highways and sewer and water facilities also acquired a substantial .portion of their capital-(approximatly two-fifths) from revenue issues. For other purposes (e.g. schools, recreation and veterans aid), however, revenue bond financing was either insignificant or was not used. More detailed information concerning recent capital market developments is presented in the attached exhibits. Business Finance and Capital Markets. Section, Division of Research and Statistics, ^ B o a r d of Governors of the Federal Reserve System. faTable 1 Long-Term Security Issues of State and Local Governments 2nd Quarter (In millions of dollars) Issuing authority: State County and tovmship Municipality School district Special authority Unidentified 1/ Total Purpose of issues New capital total ' Schools Highways, bridges, tunnels Residential buildings Hospitals and institutions Sewer and water Misc. public service enterprises Recreation - Port and airport Veterans aid Industrial buildings Other . Unidentified 1/ 1956 1955 16U 53 152 287 1496 165 1,617 l j 6 ° •Refunding Type of issues General obligation Revenue General revenue 2/ Total ' 1953 25U 13k 363 2 ia 312 125 668 118 I466 2U7 7ii5 129 136 66 299 263 " 151 L05 50 310 170 I4I6 1149 1,1429 2,372 1,1042 1,500 I5I4I8 ' 2,33k . 365 226 II4O 28 192 37 111 58 20 3 210 125 502 1,068 133 b3 162 57 . 8 22 25 1 186 127 i m 1416 323 122 hh •178 30 13 9 10 2 m 153 1,1477 29k 532 73 9 138 55 8 13 98 0 107 1149 23 11 39 1,617 1,429 2,372 1,08U * 533 0 972 457 0 1,217 1,126 0 921l 393 125 897 603 0 1,617 1,1*29 2,372 1,1+1|2 1,500 2 / Total of issues -with proceeds of million or over. Note. —Details may not add to totals because of rounding. Source.—Bond Buyer and Federal Reserve, 52 u 3 39U 159 lilt 15 213 216 6 76 68 3 lh6 165 Total 1952 195U 30 l,w 1,500 — -UTable 2 ^ ** Distribution of State and. Local Government Security Issues between Revenue Bonds and General Obligations 2nd Quarter, 1956 Revenue Issuing authority . Special authority State'. Municipality County School district Total Purpose of Issue Total Industrial buildings Miscellaneous Public Service Enterprises Port and Airport Highways Sewer and later ^Residential buildings Schools Bridges and Tunnels Recreation Veterans aid Other Source.—Bond Buyer and Federal Reserve. 6k% 1|2 25 5 2 33 Total 36% 58 75 95 98 67 100% 100 100 100 100 100 'l 67% 33% 1DD 92 75 kQ 39 10 8 0 0 0 23 General Obligations - ""o 8 25 60 61 90 92 100 100 100 77 100% loo" 100 100 100 100 100 100 100 100 100 100 EXHIBIT A H I G H - G R A D E BOND YIELDS V\ U. S. Date Corporate Aaa 1/ Old series Spread between State and U. S. Govt, New series local govt. (old series) and Corporate1 State and Aaa 2/ Aaa 1local Aaa long-term 2/ (Per cent) 1953 - High Lew 195k - High Low 1955 - High Low 1956 - High Low 3.U2 2.99 3.09 2.85 3.17 2.91 3.U7 3.07 July 27 August 3 August 10 August 17 August 2k 3-30 3-35 3-38 3.U2 3.U7 (6/19) (1/9) (1/8) (k/23) (12/23) (1/7) (8/21) (3/2) n.a. 3.15 (6/6) 2.78 (12/26) 2.7U (1/9) n.a. 2.1*1; (8/7) 2.9k (8/5) 3.03 (8/5) 2.89 (6/10) 2.62 (V7) 3.21 (8/2U) 3.23 (8/21*) 2.80 (2/17) 2.92 (2/3) 2.73 1.98 2.21 1.90 2.3k 2.05 2.59 2.17 3.02 3.06 3.09 3.1k 3.21 2.kl 2.1*5 2.k7 2.53 2.59 3.10 3.13 3.ill 3.18 3.23 (6/25) (1/8) (6/10) (9/2) (9/8) (5/26) (8/23) (2/23) .38 .19 • k3 .32 • 3k .13 • ko .13 • 8k .30 .61 .29 . •70 .5k .68 •k5 .28 .29 .29 .28 .26 .61 .61 .62 .61 .62 1/ Weekly average of daily figures. Average term of bonds included is 25-26 2/ Weekly averages of daily figures. The old series includes fully taxable, marketable 2 1/2 per cent bonds duE or first callable after 12 years through September 1955, and those due or callable in 10-12 years thereafter; the average term to first call of the bonds included declined from lb years in early 1953 to 11 1/2 years in early 1956. The new series is comprised of the 3 per cent bond of 1995 and the 3 l/h per cent bond of 1978-83. 2/ Thursday figures. Only general obligation bonds are included; average term is 20 years. Note.—Highs and lows are for individual series and may bo on different dates for different series. L O W E R - G R A D E BOND YIELDS Weekly CORPORATE Baa STATE AND LOCAL GOVT. P T I I I STATE AND LOCAL GOVT. REVENUE i iIii 1 K w RKJ—t—L-l—i Corporate . Baa 1/ State and local govt. State and local govt. rev, j/ LIT (Per cent) 1953 - High Low 195U - High Low 1955 - High Low 1956 - High Low 3.89 3.50 3.7U 3.^ 3.63 3-U5 3.95 3.58 July 27 August 3 August 10 August 17 August 2k is 3.90 3.9U 3.95 (9/18) (1/2) (1/8) (12/31) (12/30) (1/Hi) (8M) (3/9) 2.96 (1/8) 3.27 (6/26) 2.71 (1/2) 3.02 (1/6) 2.72 (8/13) 2.99 (12/30) 2.76 (1/7) 3.79 (6/25) 3.32 (1/7) 2.93 (8/5) 3.26 (12/29) 3.00 (1/1) 3.57 (8/23) 3.20 (3/8) ts 3.37 3.b2 3.46 3.5U 3.57 3.22 3-31 3.39 m i s 1/ Weekly average of daily figures. Average term of bonds included is 25-26 years. 2/ Thursday figures. Only general obligation bonds are includedj average term is 20 years. J/ Friday figures. Average rating of bonds included is between Baa and Aj average term is 20 years. Note.—Highs and lows are for individual series and may be on different dates for different series. Stock price Index 1/ Stock market customer credit Common Trading Customers stock volume 2j debit bal- loans to (millions yields ances h/ "others" 5/ of shares) (per cent) (Millions of dollars) 167.1 U*1*.0 221.1* 156.5 270.7 217.1* 295.5 257.lt (1/2) (9/18) (12/31) (1/6) (12/30) (1M) (8/3) (1/20) 275.5 290.1 293.3 291.lt 286.7 2.5 0.9 3.7 l.l* 1*.6 1.5 3.1 1.6 1.8 2.2 2.3 1.8 1.8 . 5.75 5.15 5.33 1*.20 1.22 3.78 1.21 3.86 2 ,1*1*5 2,055 3,1*36 2,1*05 1*,030 3,537 l*,0l*7 3,991. 1,665 1,311* 2,388 1,653 2,805 2,517 2,810 2,71*0 780 66U 1,01*8 71*6 1,21*1 1,018 1,267 1,200 1*.01 3.87 1*,009 1*,026 2,786 2,812 1,223 1,211* 1,201* 1,200 1/ SEC index of 265 common stocks, weekly closing prices, 1939-100; converted to 1957-1*9*100 by Federal Reserve. The conversion factor is 123.91. 2/ Averages of daily trading volume on the New York Stock Exchange. ~%J Moody's 200 common stocks; end of month figures. 5/ End of month figures for member firms of the New York Stock Exchange which carry margin accounts; excludes balances secured t>y U. S. Government obligations. Wednesday figures for weekly reporting member banks. Excludes loans for purchasing or carrying U. S. Government securities at banks in New York and Chicago. Weekly reporting banks account for about 72 per cent of loans to others. Note.—Highs and lows are for individual series and may be on different datesfor different series. ' - Exhibit D H.lli Corporate and State and Local Government Security Offerings and Placements (In millions of dollars) New capital 19# January February March April May June July August September 579 70U 790 Corporate 1955 1 535 U07 1,223 816 1,11*1* 830 178 886 687 e/1,120 e/600 597 61* 670 October November December 1st quarter 2nd quarter 3rd quarter kth quarter Year I 1,162 ^ 632 900 2,073 2,790 2,165 2,052 1,911 2,695 8,821 - . 1954 1956 51*7 U26 635 hok 696 390 1*97 656 8U2 909 335 71*7 1951* 535 312. 538 396 1*11 565 377 1*90 e/730 1*27 350 6ia 73k. 71*8 853 e/380 e/200 1*70 21*9 1*06 279 261 61*9 919 658 1*08 591* 1*23 877 1,385 1,1*18 1,121* 1,981* 5,911 1,372 2,331* 1,188 1,891* 6,789 1,003 290 6oU .1,6.08 1,995 1,991 1,896 7,^90 State and local 1 1955 1 1,1*90 e/1,597 Excluding finance companies 2/ 1st quarter 2nd quarter 3rd quarter ilth quarter Year 1,617 e/2,590 1,727 1,870 1,1*31* 2,55k 7,569 1,527 1,927 1,911 1,792 7,158 1/ Includes $637.2 million AT&T convertible debenture issue. 2/ Total new capital issues excluding offerings of sales and personal finance companies. . Note.—Details may not add to totals due to rounding. m H.lU Exhibit E Large Public Security Issues for New Capital (Other than U. S. Treasury) 1/ Proceeds of Large Issues Offered (Millions of dollars) Corporate Month State and local government 101 hOS 328 805 221 263 95 212 278 395 #3 185 592 1955 - July . August September October November December 1956 - January February • March April May June f , July 278 65 23U 716 hOl 227 192 . 1M 163 157 2% 163 16U Other 2/ ' 25 50 50 20 Large Individual Issues Offered August 1 through August 2k Issuer Type 2/ Coupon Amount rate or. Offering Onillions Maturity net interyield of est cost dollars) Rating CORPORATE El Paso Natural Gas Co. Pfd. stk. Consumers Power Co. 1st mtg. bds. Pacific Tel. & Tel. Co. Deb. Minneapolis -Honeywell Co. S.F. deb. Associates Investment Co. Deb. 25.0 hO.O 78.0 25.0 30.0 1986 1988 1976 1976 1+ L3/8 3 3A h 1/2 3.9U U.23 3.79 U.38 . Aaa Aa Aa — STATE & LOCAL GOVERNMENT Suffolk Co., New York ' State of Delaware : Yonkers, New York G.O. G.O, G.O. - 9.3 7.0 6.U 1957-81 1957-76 1957-76 2.95 2.6k 3.29 2.00-3.00 2.00-2.65 2.30-3.25 A ' Aa A 36.5 1957-86 U-U 1/8 3.60-1*.1*0 A OTHER ., Metropolitan Toronto Deb. ^ 1/ Includes corporate and other security offerings of $15 million and over; State and local government security offerings of $5 million and over, 2/ Includes foreign government and International Bank for Redone struction and Development issues. 2 / In the case of State and local government securities, G.O. denotes general obligation; Rev., revenue bonds; G.R., general obligations additionally secured by facilities revenues; L.L., limited liability obligations; secured by pledge of designated revenues. Exhibit F H.Ik Forthcoming Large Public Security Offerings for. New Capital (Other than U. S. Treasury) l/ Expected Proceeds from Forthcoming Large Issues During month following date shown State and Other 2/ Corporate local govt. Date of computation 1 9 # - July 29 Aug. 31 Sept. 30 Oct. 31 Nov. 30 Dec. 30 1956 - Jan. 31 - Feb. 29 Mar. 30 Apr, 30 May 31 June 30 July 31 k07 222 805 202 215 70 176 123 380 568 198 2*37 2k7 100 18U 8U3 330 205 121 327 220 132 ... 173 332 81 Subsequent to"" Corporate 50 — " 37 — 1,135 920 909 1*12 230 85 376 233 1,013 818 m 567 1,096 State and Other 2/ local,govt. 2,018 1,971 2,205 1,650 756 618 917 785 811 832 9U1 690 726 50 — —— 37 Forthcoming Large Offerings, as of August 2lt Type Issuer CORPORATE Mack Trucks, Inc. Amount Approximate date (millions of offering of dollars) • S.F. deb. 19.2 Gulf States Utilities Co. General Telephone Co. of Calif. Northern States Power Co. ^Procter & Gamble Co. Detroit Edison Co. 1st mtg, bds. 1st mtg. bds. 1st mtg. bds. Deb. Conv. deb. 15.0 20.0 15.0 70.0 59.8 ^Southern Pacific R.R. Co. North American Aviation, Inc. 1st mtg. bds. Cap. stk. Uo.o ^Virginia Electric & Power Co. New England Tel. & Tel. Co. 1st mtg. bds. Cap. stk. 20.0 18.9 ^Southern California Edison American Tel. & Tel. Co. 3/ J T P . Stevens & Co. Common stk. Common stk. S.F. deb. 35.0 25.0 580.0 28.7 August 30 (rights expire) September 10 September 11 September 12 September 13 September lU (rights expire) September 19 September 2h (rights expire) September 25 September 28 (rights expire) September November 5 (rights expire) 1956 H.lU F-2 Forthcoming Large Offerings., as of August 2k (Cont'd) Issuer Type Amount Approximate date (millions of offering of dollars) CORPORATE (Cont'd) CIT Financial Corp. Pacific Finance Corp. Michigan Wisconsin Pipe Line Co. Southern California Edison Co. Commercial Credit Co. Deb. Deb. 1st mtg. bds. 1st nitg. bds. Notes 75.0 25.0 25.0 1*0.0 50.0 1956 1956 1956 1956 1956 STATE AND LOCAL GOVERNMENT Chicago, 111., Park District *Port of New York Auth., N.Y. ^Allegheny Co. Inst. Dist., Pa. Oakland Unified School Dist., Cal. Los Angeles School Lists., Cal. Jacksonville Expressway Authority Memphis, Tennessee Washington State Toll Bridge Auth. Florida State Turnpike Authority Oklahoma Turnpike Authority Pennsylvania Turnpike Commission Washington State Toll Bridge Auth. Inter-American Center Auth., Fla. New Jersey Highway Authority New York State Thruway Authority G.O. G.O. G.O. G.O. G.O. Rev. Elec. rev. Rev. * Rev. Rev. Rev. Rev. Rev. Rev. G.O. 12.0 25.0 6.3 10.0 29.0 U2.0 135.0 5.1* 185.0 65.0 62.0 227.0 70.0 25.0 50.0 August 28 September September September September September September Fall Fall 1956 1956 1956 1956 1956 1956 6 11 11 18 OTHER None Included in table for first time. 1/ Includes corporate and other issues of $15 million and over; State and local government issues of $5 million and over. 2/ Includes foreign government and International Bank for Reconstruction and Development issues. 3/ Subject to stockholders' approval on September 5, 1956.