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BOARD DF GOVERNORS FEDERAL RESERVE SYSTEM Office Correspondence To. Chairman Eoolea From. Rio hard A. Mus crave Date June 27. 19ii7 Subject! Position of Dealers in GovernMent Securities March 19U6- June I9I47 Thomas L. Smith The position of reporting dealers in Government securities (excluding Treasury b i l l s ) on June 16, 19li7 was .8 billion dollars as compared with 1#3 billion in Maroh I9I46 when their position was the largest since the Victory Loan drive at the end of 19^5» The period was marked by two preoipitate drops in April and July followed by partial recoveries in subsequent months to a level of almost 1 billion at the end of November! by another decline t o a low of about . 2 billion by mid-Maroh$ and by a rise to .9 billion by the end of May* Most of the last increase occurred during the month of May, and consisted primarily of notes and certificates. Certificates now aooount for about one half of total dealer holdings. They have shown no trend sinoe the beginning of the retirement program but have fluctuated widely in response to swings in the market demand for short-term securities. They have been the major factor of change in dealer positions* Holdings of restricted bonds declined more or less constantly from Maroh I9I46 to February 19U7* when they were nearly liquidated; since then holdings have fluctuated at a very low level* Similarly, dealer holdings of partially tax exempt bonds have steadily declined since March of taxable unrestricted bonds have fluctuated but withl6 while holdings h t out any noticeable trend. There has recently been an increase in the holdings of certificates, notes and taxable bonds from abnormally low levels reached in March l$l(J. The fluctuations in dealers 1 holdings of certificates and notes coincides with the state of the market* During every period of temporary weakness when certificates were in supply, dealers have added to their position, and conversely when certificates were in demand dealers have sold certificates. This has reduced the volume of ^federal Reserve purchases and sales required to support the 7/8 per cent certificate rate. Holdings at present are at a reasonable level. They are some 300 million dollars less than at the start of the Treasury's retirement program in March 19i|6 and also below levels maintained during the greater part of 19ll5 &EL<1 191+6. The recent increase in dealer positions above the low reaohed in Maroh resulted from dealer support of a weak certificate market and the need for increased bond holdings due to a somewhat more active bond market. Sales for Treasury account were kept uncertain so that this source of supply did not relieve the need for some dealer position. The Hew York Reserve Bank reported in i t s weekly reports on open market operations during the second half of I9I46 that the positions of two dealers in restricted bonds were overly large relative to their capital and volume of business. This situation has since been corrected. POSITION OF REPORTING DEALERS IN GOVERNMENT SECURITIES ON SELECTED DATES, M&RCH 1946 - JUNE 1947 (in millions of dollars) Certificates of indebtedness March 14, 1946 J^-il 18, 1946 We 28, 1946 July 18, Sept. 23, Oct. 11, Nov. 29, Jan. 20, Feb. 24, March 19, May 29, June 16, 1946 1946 1946 1946 1947 1947 1947 1947 1947 528.5 198.4 570.8 205.7 402.5 141.2 Eligible bonds Taxable Treasury Partially •hflTunre- Total notes stricted exempt 51.4 53.8 93.9 - 2.8 353.1 243.8 166.3 199.6 77.4 164.6 56.2 135.8 28.7 ij23«0 430.2 408.5 Restricted bonds bond,*} 438.0 173.6 45.7 Notes and eligible - 77.5 2.1 136.1 88.3 162.8 153-7 113.3 117.4 96.4 90.1 96.7 130.3 483.4 78.4 322.2 68.2 23U.5 - 17.3 182.3 67.4 232.0 75.0 237.8 159.1 312.8 534.8 376.0 328.4 179.5 309.4 294.0 66.4 179.7 14148.6 208.4 296.9 51.5 147.9 145.8 102.0 219.4 142.7 232.8 368.9 162.4 259.1 347.4 277.5 251.3 177.2 143.3 Total excluding Treasury bills 1,340.8 825.7 1,076.4 528.5 121.5 833.4 70.4 80.4 63.8 3.5 505.6 967.0 28.1 76.6 31.7 72314 219.6 875.7 787.6
@FedFRASER