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BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence To. Date Subject! Chairman Eccles October 22, 1QJ|7 Changes in holdings of bonds by denoTrn nations Thomas Lee Smith Total holdings of Series nEn bonds increased in the first half of I9I4.7 for the first time since I9k5* The increase, however, was entirely in denominations of {200 and over, and holdings of lower denominations continued to decrease though at a slower rate than in 19lj.6# Total holdings increased by 528 million, 2t|6 million because of an excess of sales over redemptions and 280 million because of additions to accrued discount* By denominations, sales of $200 and larger bonds exceeded redemptions by 787 million, but sales of smaller denominations were 5k2 million dollars less than redemptions« The net redemption of |25 and #10 bonds was 350 million dollars* The following data with respect to the changes in holdings of E bonds have been condensed from the attached table which shows changes in sales and redemptions of all U» S» Savings Bonds • n n CHANGES IN HOLDINGS OF w E n BONDS (In millions of dollars) ?10, $25 bonds Excluding accrued discount $50, $100 $200, $500, $1,000 bonds bonds Total Including accrued discount, total 3,1427 I,li32 3.583 1,629 Jan.-June July-Dec* 783 - 37 1,233 1+05 1,14.08 1,067 Jan.-June July-Bec« -600 -508 293 329 378 1485 605 352 - 367 - 96 -350 - 192 787 2ljS 528 To* Chairman Eccles - 2 - Changes in holdings since June are not available by bond denominations* Aggregate holdings, however, have been quite steady during the last six months« Following an increase of 1427 million in the first quarter (excluding accrued discount), when sales are seasonally high prior to exhaustion of the purchase limit, holdings have decreased by 77 wad 70 million in the second and third quarters, respectively* As shown in the more detailed table attached, aggregate redemptions of nBn bonds increased sharply for a year affcer the end of the war in mid-1945, rising from 2*1 billion dollars in the first half of 1945 to 3*0 billion in the first half of 1946# At the same time, sales fell off even more rapidly, from 5*5 billion to 2 # 4 billion in the same two periods* As a result, aggregate holdings decreased #6 billion in the first half of 19i+6f or else by »4 billion if the increase in accrued discount is added to holdings* This marks the first and also the greatest decline in nEn bond holdings that has occurred* Holdings, including accrued discount, decreased only #1 billion in the second half of 1946, and then increased by #5 billion in the first half of k The improvement since the first half of 1946 is accounted for by a large reduction in the volume of redemptions, reversing the previous upward trend, which has exceeded in amount a further reduction in the volume of purchases* Redemptions decreased from 3«>0 billion in the first half of 1946 to 2*0 billion in the first half of 1947, while sales were decreasing from 2*4 to 2#3 billion* The facts that redemptions are now no larger than in the first half of 1945 a-11** that sales have turned upward from a low point of 2«C billion in the second half of 1946, reflect the effect of a rising level of income and the elimination of many of the more transitory investors who, under the incentive of patriotism, had purchased more bonds than they could afford* The increasing permanence of the investments in ttEw bonds is also shown by the decline in the proportion of redemptions to total amounts outstanding which has been in progress beginning in the last half of 1946 for all denominations of bonds* The decline in the redeemed proportion of smaller denomination bonds ($50 and under) began even earlier* The redeemed proportion of the smaller denomination bonds as well as of the total of all n n E bonds has fellen below the level in the first half of 1945 # tut the redeemed proportion of larger denomination bonds has not yet fallen below the earlier level* The estimated proportions redeemed in selected periods are as follows: REDEMPTIONS OF "E* BONDS AS PER CENT OF AMOCJNT OOTSTANDINCT AT BEGHOrilG OF PERIOD 1945 Jaiu-June July-Dec* 1946 Jan*-June July-Dec. $10 $25 |5£ 34*6 35»6 15#1 10*5 17#9 13*0 5*3 6#8 ~ — 3*6 4*4 3.5 4*2 8*2 9*9 30*9 23 •& 15*9 12*5 12*7 10*0 7,8 6*5 9*6 6*5 5*9 4*9 5*8 4*7 9#9 7*9 18*3 10.2 5*6 7*0 4*6 4*5 6.6 8*2 $100 $200 $500 $1,000 Total To* Chairman Eccles - 3 - The pattern of redemptions and sales of smaller denominations ($100 or less) has differed somewhat from that of larger denominations• The peak redemptions of the smaller denomination bonds occurred in JulyDecember 19U5 rather than in January-June 19^6; and the vdlume of sales of the smaller denominations has continued to decrease while that of larger denominations turned upward in July-December Attachment U» S. SAVINGS BONDS, SALES AND REDEMPTIONS (In millions of d o l l a r s ) #10 •25 $50 Series "En bonds $100 |200 $500 Total 11,000 "G* "A-D" Total 1914.5 Jan# * June Sales Redemptions Net Accrued dis» July - Dec* Sales Redemptions Net Accrued dis« 191+6 Jan« - June Sales Redemptions Net Accrued dis* July - Dec* Sales Redemptions Net Accrued dis» 19^7 Jan* - June Sales Redemptions Net Accrued dis# • 1,850 811 1,101 352 • 3k • 749 •a+59 * * 1,087 313 + 77*+ 606 1,392 1+3 21 1+99 59 •107 • 22 • * 756 1+58 115 •298 +115 •317 * 80 11 + 69 * 280 257 + 23 57 12 286 217 + 69 21 25 * - 709 1,295 —586 1+98 * 211 383 -172 11 18 I4.66 967 7 * -501 * 6 13 393 197 736 302 -31+3 -105 - 7 * • — +495 * • • 31+8 51+7 -199 • 289 144-6 -157 + 45 • 291+ 381 - 87 * I+96 179 63 16 + 1+7 GOVERNMENT FINANCE SECTION, BOARD OF GOVERNORS October 2 1 , I9U7 332 209 •123 5,516 1,100 187 + 913 * 2,089 363 1+7 • '156 •316 • 11 901 266 +635 * 1+.3O6 2,871+ +1,1+32 • 197 232 58 +171+ + 15 1,032 li+5 + 887 691 2,1+33 3,038 - 605 + 238 176 91 1,1+33 203 + 85 • 19 •1,230 H+9 98 1,203 222 + 98I 1+05 •286 * 713 3l+2 +371 • Not available* 623 128 2,033 2,385 - 352 • 968 1 351 +617 256 2,251+ 2,006 • • 2148 280 + 51 + 22 210 105 •105 + 27 *120 •1,368 +1,111 — 7,367 2,361 -105 + 52 •5,006 • 219 120 5,570 3,197 -120 • 61 •2,373 • 265 188 -188 3^520 • 521 • 308 202 -202 + 51+ 280 -280 • 51+ 3,385 2,907 + 478 + 331 3,922: 2,638 •1,18^ • 360