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Strictly Confidential (FR) Class I FOMC October 2, 1981 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Prepared for the Federal Open Market Committee By the staff Board of Governors of the Federal Reserve System STRICTLY CONFIDENTIAL (FR) CLASS I - FOMC October 2, 1981 MONETARY AGGREGATES AND MONEY MARKET CONDITIONS Recent developments (1) Growth of M1-B (adjusted for shifts into NOW accounts) accelerated to almost a 7 percent annual rate in August, but then contracted in September. Over the June to September short-term target period growth was at about a 1¾ percent annual rate, well below the Committee's objective for that interval. As shown in the last column of the table on the next page, growth in adjusted M-1B for the year to date is just a little over 1 percent at an annual rate, well below the lower limit of the Committee's 3½ to 6 percent longer-run range. (2) Growth of M2 over the June to September period was at a 9 percent annual rate, holding growth for the year to date at the upper end of the FOMC's longer-run range. The nontransaction component of M2 in August and September showed considerable strength, led by continued large inflows into money market mutual funds. (3) In interpreting the third quarter behavior of M2, it should be noted that its growth was restrained by diversion of M2 balances to retail RPs issued by depository institutions in part to compete with MMMFs but mainly to attract customer funds in anticipation of the October 1 issuance of All Saver Certificates (ASCs).1 These RPs were not included in M2 when it was redefined in early 1980 because they were not of any importance at that time. Inclusion of all such RPs in M2 would raise its 1/ An August 31 Federal Reserve survey indicated that on that date depository institutions had $11.1 billion of retail RPs outstanding-$6.3 billion at S&Ls, $1.3 billion at mutual savings banks, and $3.5 billion at commercial banks. Staff estimates based on sample data suggest such RPs rose a further $4 billion by the end of September. -2 - Key Monetary Policy Aggregates (Seasonally adjusted annual rates of growth) Sept.2 / Sept. '81 E2 Sept. '81 2/ over over June '81 QIV '80 July August 2.6 7.4 9.2 8.7 5.7 6.9 12.1 14.4 13.9 10.3 -4.0 7.3 9.3 8.6 7.3 1.8 9.0 11.1 10.5 7.8 19.8 7.9 8.2 17.2 8.6 5.1 21.6 21.9 3.8 19.9 12.9 5.7 1,676 1,339 1,159 Money and Credit Aggregates M-B (shift adjusted) M2 M2 plus retail RPs 1/ M3 Bank Credit Reserve Measures 2/ Nonborrowed Reserves Total Reserves Monetary Base Memo: 1/ 2/ 3/ p/ 1.1 9.0 9.8 11.4 8.5 3/ Adjustment Borrowing (million of dollars) 7.2 6.2 5.4 The quantity of retail RPs are staff estimates based on an August 31, 1981 universe survey, and partial FRB and FHLBB samples. Growth rates for reserve measures are adjusted to remove the effects of discontinuities for breaks in the series as reserve ratios go through phased changes under the Monetary Control Act. In addition, reserve data for QIV '80 have been adjusted to remove the distorting effects of the reduction in weekend reserve avoidance activities that occurred in late 1980. Nonborrowed reserves included special borrowing and extended credit from the Federal Reserve. Preliminary. Memorandum: FOMC Targets (percent increase) Longer-run (QIV '80 - .QIV '81) Ml-B (shift adjusted) M2 M3 Bank Credit 3-1/2 to 6 6 to 9 6-1/2 to 9-1/2 6 to 9 growth from June to September by about 2 percentage points. If adjusted to include retail RPs, growth of M2 would be about ¾ of a percentage point above the longer-run target range. (4) Nonborrowed reserves expanded at a 20 percent annual rate over the third quarter. Total reserves expanded substantially less, though, as adjustment borrowing from the discount window declined, reflecting the weakening in required reserves against transaction balances. In the most recent statement week, adjustment borrowing averaged a little over $1 billion, some $350 million below the level assumed in constructing the reserve paths after the last meeting. Growth in the monetary base was considerably less rapid than expansion in total reserves, as expansion of currency slowed to an unusually low 4 percent annual rate over the past three months.1/ (5) The federal funds rate, which had averaged around 19 percent in July and around 18¼ percent at the time of the August meeting, recently has traded in a 14½ to 16½ percent range as pressure in the reserves market 2/ eased.- In response, most other short-term market rates have declined 1 to 2½ percentage points. The bank prime rate was reduced by 1 percentage point to 19½ percent, and the Federal Reserve reduced by 1 percentage point to 3 percent the surcharge rate for large, frequent borrowers at the discount window. 1/ See Appendix I for adjustments made to the reserves path during the intermeeting period. 2/ Trading took place at somewhat higher rates on the first two days of same day CHIPS settlement, as institutions initially managed reserves more cautiously in adjusting to the new system. (6) Despite the easing in the money market, bond yields have increased on balance since the last meeting by 50 to over 100 basis points. The advance in long-term yields reflected in large part market concerns about federal deficits in fiscal 1982 and beyond. The Treasury raised over $8 billion of new money in September to build up its cash balance to help meet the large fourth-quarter combined (unified and off-budget) deficit of around $50 billion, and it has recently held or announced auctions to raise another $5 billion of cash through 20- and 7-year issues. (7) Since its peak in early August, just prior to the last FOMC meeting, the dollar has declined on balance by about 7 percent. Lower short-term interest rates in the United States contributed to the dollar's net decline, but the market also reacted to the prospective improvement in Germany's current account and a weakening in that of the United States. Prospective developments (8) The table below presents three alternative approaches to the monetary aggregates for the fourth quarter of 1981. Implied growth rates for the QIV '80 to QIV '81 longer-run policy period for each of these alternatives are also shown. Possible ranges for the intermeeting federal funds rate are indicated in the last line of the table. (More detailed data on these and other aggregates may be found on the following two pages, and charts indicating the relationship of the alternative threemonth targets to the Committee's existing longer-run ranges for 1981 may be found on the next three pages.) Alt. A Alt. B Alt. C 9 11 6 10 Growth from September to December 12 12½ M-1B M2 Implied growth from QIV '80 to QIV '81 M1-B M2 3 10 2 9¾ Federal funds rate range 9 to 15 11 to 17 (9) 2 9 13 to 18 Alternative A is designed to achieve a rapid enough expansion of M1-B over the next three months so that it would reach the lower limit of the FOMC's 3½ to 6 percent longer-run target range by December. This approach would probably lead to growth in M2 (and also M3) for the year well above target. Alternative C is designed to bring M2 closer to its target for the year, with the projected small overshoot accounted for mainly by shifts of funds out of non-M2 assets into ASCs; such an approach would Alternative Levels and Growth Rates for Key Monetary Aggregates M1-A M1-B Alt. A 1981--August September October November December Alt. B Alt. C Alt. A Alt. B Alt. C 392.7 391.0 394.1 398.4 402.9 392.7 391.0 393.4 396.3 399.8 392.7 391.0 392.8 394.6 396.4 422.3 420.9 424.3 428.9 433.7 422.3 420.9 423.6 426.8 430.6 422.3 420.9 423.0 425.1 427.2 -5.2 (-8.0) 9.5 (10.7) 13.1 (9.6) 13.6 (13.1) 12.2 (11.2) -5.2 (-8.0) 7.4 (8.3) 8.8 (5.0) 10.6 (9.9) 9.0 (7.8) -5.2 (-8.0) 5.5 (6.3) 5.5 (1.3) 5.5 (4.3) 5.5 (4.0) -4.0 (-2.8) 9.7 (9.4) 13.0 (14.3) 13.4 (14.4) 12.2 (12.9) -4.0 (-2.8) 7.7 (7.5) 9.1 (10.5) 10.7 (11.8) 9.2 (10.0) -4.0 (-2.8) 6.0 (5.8) 6.0 (7.5) 5.9 (7.1) 6.0 (6.8) 5.1 -1.5 7.3 5.1 -1.5 5.2 5.1 -1.5 3.3 5.3 -0.7 7.6 5.3 -0.7 5.7 5.3 -0.7 3.9 2.3 1.7 1.3 2.9 2.4 1.9 Growth Rates Monthly 1981--September October November December September '81 - December '81 Quarterly Average 1981--QII QIII QIV 1980 QIV - 1981 QIV NOTE: Growth rates shown in parentheses are for the observed levels of the aggregates. Alternative Levels and Growth Rates for Key Monetary Aggregates (cont'd) M2 Alt. M3 A Alt. B Alt. C Alt. A Alt. B Alt. C 1777.9 1788.7 1811.5 1830.0 1844.6 1777.9 1788.7 1810.0 1826.0 1839.0 1777.9 1788.7 1808.0 1821.0 1833.4 2118.3 2133.5 2159.5 2175.7 2189.6 2118.3 2133.5 2158.0 2173.3 2186.5 2118.3 2133.5 2156.0 2171.0 2183.4 1981--September October November December 7.3 15.3 12.3 9.6 7.3 14.3 10.6 8.5 7.3 12.9 8.6 8.2 8.6 14.6 9.0 7.7 8.6 13.8 8.5 7.3 8.6 12.7 8.3 6.9 September '81 - December '81 12.5 11.2 10.0 10.5 9.9 9.4 10.6 7.3 12.0 10.6 7.3 11.1 10.6 7.3 10.2 10.6 10.4 11.3 10.6 10.4 10.8 10.6 10.4 10.4 9.9 9.7 9.4 11.6 11.5 11.4 1981--August September October November December Growth Rates Monthly Quarterly Average 1981--QII QIII QIV 1980 QIV - 1981 QIV Chart 1 CONFIDENTIAL (FR) Class II-FOMC Actual and Targeted M1-B M1-B * Billions of dollars -- 460 Observed Level ... Level Adjusted for Impact of Nationwide NOW Accounts - * - Short-Run Alternatives -1450 - 440 .A .. c - -1420 --4410 -- 400 I 0 I N 1980 I D I J I~ I I F M II ___ I I I A M J J 1981 I I I A I S I 0 , N D Chart 2 CONFIDENTIAL (FR) Class II-FOMC Actual and Targeted M 2 M2 Billions of dollars 11860 - Actual Level .... Short-Run Alternatives 1820 -- 1800 -41760 -1740 -- 1720 -11700 -11680 -- 1660 1640 N 1980 D J F M A M J J 1981 A S I I I I I I I I I I I I I I O O N D Chart 3 CONFIDENTIAL (FR) Class M 3 and Bank Credit M3 FOMC Billions of dollars S 2200 *Actual Level -Short-Run Alternatives 2150 2100 2050 2000 : : 1950 *NOTE. N F J D M A, B. and C alternatves are inditingulhatble on this scale A J 1980 A S 0 1981 BANK CREDIT Billions of dollars 1350 " Actual Level 9% -1300 .60/b I 1250 O SI I I N 1980 D I J IIII F M I _J A M I I J J 1981 I A I I I J I S 0 I N 1200 D leave M1-B for the year well below the lower end of its range. Alternative B falls midway between the two approaches.1/ (10) Under the specifications of alternative C we would expect growth in M1-B at a 6 percent annual rate over the September to December period to be consistent with maintaining M2 relatively near to the upper limit of its longer-run target range. The staff does not expect this alternative to involve further downward pressures on short-term interest rates, given the 7 percent increase in nominal GNP projected for the fourth quarter and assuming less rapid downward shift in demand for M1-B 2/ (relative to income and interest rates) than occurred earlier this year.2/ (11) Over the next few weeks, the federal funds rate under this alternative may fluctuate for the most part in the area of 15 to 16 percent. 1/ Other short-term rates are not likely to drop further under In developing these alternatives it was assumed that about $80 billion would shift into ASCs during the fourth quarter out of $125 billion projected to shift over the life of the instrument. Of this amount, it was further assumed that about $15 billion will represent funds that are not currently in M2 (with about three-fourths representing funds currently in retail RPs). A shift to ASCs from non-M2 sources of that amount would raise M2 growth by about 3 percentage points at an annual rate for the fourth quarter, and about ¾ of a percentage point for the year 1981. It is probable, however, that such a calculation overestimates the impact of ASCs on M2. To the extent that retail RPs represent funds that would have otherwise been in M2, shifts from them to ASCs in the fourth quarter only offset the downward distortions to M2 from their growth in earlier quarters. If it is assumed, at one extreme, that all retail RPs reflect funds diverted from M2-type accounts, then the impact of ASCs on M2 for the year 1981 would only be about ¾ of a percent. It is probably best to assume a range of impact from ¼ to ¾ of a percent. 2/ Over the first three quarters of 1981, the downward shift in demand for adjusted M1-B according to the Board's quarterly model was equivalent to about 6 percentage points at an annual rate. such circumstances, and they could edge higher. financial markets are expected to remain sizable Business net demands on as profits continue to be squeezed, and to focus, as in the recent past, on short-term markets. About half of the Treasury's large cash need between now and year end is expected to be raised in the bill market. (12) Total reserves would need to expand at a 3 percent annual rate over the last three months of the year if the monetary specifications of alternative C are to be achieved. Adjustment borrowing at the discount window would probably vary between $900 million and $1.2 billion, given the current structure of discount rates and a federal funds rate in the area of 15 to 16 percent. Nonborrowed reserves would be targeted to expand at a 4 percent annual rate over the last three months of the year. (13) The specifications of alternative B call for a more rapid growth in M1-B at around a 9 percent annual rate from September to December, sustained by 6 percent annual rate of growth in total reserves. The federal funds rate under these conditions is likely to decline to around the current 14 percent basic discount rate or just below. Adjust- ment borrowing at the discount window would move down to minimal levels in the area of $200 to 300 million or so. Nonborrowed reserve growth would be at a 14 percent annual rate over the next three months. (14) Other short-term rates would decline along with the -funds rate, and a substantial rally in bond markets might develop. The possibilities of such a rally, or the length of one, would be limited by the large pent-up corporate and municipal demands for long-term credit that are likely to materialize as credit conditions ease. Declines in mortgage rates are likely to lag drops in other longer-term yields, in part reflecting -10- continued pressures on thrift institutions only partially relieved by ASCs. It would probably take some time before any significant pick-up in mortgage commitments was evident, given the past volatility of market conditions and the relatively short-term maturity of ASC deposits. (16) Under alternative A, M1-B growth is targeted to rise at about a 12 percent annual rate from September to December in order to bring this aggregate back to the lower bound of its long-run range by the end of the year. We would expect a substantial drop in short-term rates-- with the funds rate dropping into a 10 to 12 percent range on average and 3-month rates moving toward single digit levels--as reserves are expanded to reach this objective. Total reserves would have to rise at a 9 percent annual rate over the quarter, and nonborrowed reserves at about an 18 percent annual rate. A reserve operating path that appears to entail market rates well below the present 14 percent discount rate calls into question the sustainability of that rate, for technical reasons if for no other.1/ 1/ A discount rate well above the expected funds rate runs the risk of leading to highly volatile money market conditions. With adjustment borrowing negligible, the level of nonborrowed reserves in the operating path would be effectively equal to the total reserves path. If there were a shortfall in money and in required reserves, maintenance of nonborrowed reserves at path levels would entail adding to banks' excess reserves, with consequent downward, and possibly sharp downward, pressure on the funds rate. In the short-run the funds rate could be driven toward minimal levels. Rates could subsequently rebound sharply as money demand strengthened, perhaps excessively, in response to the very low money market rates. This type of rate volatility would probably be a little more marked under lagged than under contemporaneous reserve accounting, since under the former excess reserves created by Federal Reserve operations in any given week cannot be absorbed by changes in required reserves that week. With a discount rate low relative to money market rates, the nonborrowed reserves path could be set below the total reserve path. As a result, a change in borrowing could absorb shortfalls in required reserves; and, with borrowing less interest inelastic than excess reserves, short-term market rates would vary less for a given nonborrowed reserve path. -11(17) M2 under this alternative would probably grow at a 12 percent annual rate over the next three months. Net inflows of funds to thrift institutions may pick up somewhat, but more importantly, pressures on their earnings would be greatly alleviated. Both mortgage market rates and bond yields are likely to show a substantial drop, calling forth stronger demands for longer-term financing. probably weaken considerably. In exchange markets, the dollar would However, the declines in long-term rates and exchange rates would tend to be moderated in the degree that market participants came to believe that a substantial rebound of short-term rates was in prospect over a reasonably near term. Such a rebound would be expected by the staff early next year in the process of restraining money growth to FOMC's 1982 targets. Such upward interest rate pressures would be intensified as the sharp easing of credit conditions between now and year-end contemplated by alternative A leads to more of a strengthening in economic activity in the first part of next year than is in the current staff projection. -12Directive language (18) directive. Given below is a suggested operational paragraph for the The specifications adopted at the meeting on August 18 are shown in strike-through form. In the short run the Committee [DEL: seek] to continue SEEKS behavior of reserve aggregates consistent with growth of M-1B from [DEL: to] June September TO DECEMBER at an annual rate of[DEL: percent after 7]____ allowance for the impact of flows into NOW accounts [DEL: in (resulting about of rate annual an at growth 2 percemt in average the from second quarter),] third in average the to quarter provided that growth of M2 remains around the upper limit of, or moves within, its range for the year. It is recognized that THE BEHAVIOR OF M2 WILL HAVE TO BE EVALUATED IN THE LIGHT OF THE EFFECTS OF RECENT REGULATORY AND LEGISLATIVE CHANGES, PARTICULARLY THE PUBLIC'S RESPONSE TO THE AVAILABILITY OF THE ALL SAVERS CERTIFICATE [DEL: shifts into NOW accounts distort to continue will extend unpredictable M1-B measured growthin operational and to an reserve-paths-will-be-developed in-the-light-of-evaluation of these distortions]. The Chairman may call for Committee consultatin if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a 15 to range of [DEL: 21]____ TO ____ percent. Appendix I RESERVES TARGETS AND RELATED MEASURES INTERMEETING PERIOD (millions of dollars; not seasonally adjusted) Targets for 4-week Average August 26 to Projection of 4-week Average August 26 to September 16 Total Reserves September 16 Nonborrowed Reserves Total Reserves Required Reserves Excess Reserves Adjustment Borrowing (5) (6) 40,571 225 1,400 40,285 40,260 40,246 40,253 40,311 225 224 269 225 268 1,242 1,200 1,082 1,185 1,310 (1) (2) (3) (4) Au=. IS (FOMC Meeting) 40,79C 35,39c 40,796 21 28 Sept. 4 11 Actual 4-week Average 40,6681 40,683-. 40,833, 40,75040,579 40,510 40,483 40,515 40,535 40,579 As of 1/ 1/ 39,2682 / 39,28339,433 / 39,35039,269 Targets for 3-week Average September 23 to October 7 Projection of 3-week Average September 23 to October 7 Sept. 18 25 41,1625/ 41,140:- 39,7625/ 39,740- 40,715 40,721 40,490 40,528 Oct. 41,226- 39,826- 40,847 40,515 n.a.Z/ n.a.Z/ 2 Actual 3-week Average Total and nonborrowed changes. Total and nonborrowed changes. Total and nonborrowed changes. Total and nonborrowed changes. Total and nonborrowed changes. Total and nonborrowed changes. Not available at time n.a. / 40,515 225 193 3327/ n.a.- 953 981 1,021 n.a.Z reserves paths adjusted downward by $128 million due to multiplier reserves paths adjusted upward by $15 million due to multiplier reserves paths adjusted upward by $150 million due to multiplier reserves paths adjusted downward by $83 million due to multiplier reserves paths adjusted downward by $22 million due to multiplier reserves paths adjusted upward by $86 million due to multiplier Bluebook was prepared. Table 1 Selected Interest Rates October 5, 1981 Percent 1980--High Low 19.83 8.68 16.73 6.49 14.3) 7.18 15.70 6.66 20.58 8.17 19.74 7.97 21.50 11.00 14.29 8.61 13.36 9.91 12.91 9.54 14.51 10.53 15.03 10.79 10.56 7.11 16.35 12.18 15.93 12.28 14.17 10.73 1981--High Low 20.06 13.48 16.72 12.64 15.05 11.83 15.85 12.08 18.70 13.47 18.04 12.87 20.64 17.00 16.54 12.55 15.65 12.27 15.03 11.81 17.62 14.05 17.52 13.98 13.21 9.49 18.36 14.80 19.23 14.84 17.46 13.18 1980--Aug. Sept. 9.61 10.87 9.13 10.27 9.39 10.48 9.44 10.55 9.91 11.29 9.57 10.97 11.12 12.23 10.63 11.57 11.10 11.51 11.00 11.34 12.32 12.74 12.31 12.72 8.67 8.94 12.56 13.20 13.92 14.77 12.34 12.84 12.81 15.85 18.90 11.61 13.73 15.49 11.30 12.66 13.23 11.57 13.61 14.77 12.94 15.68 18.65 12.52 15.18 18.07 13.79 16.06 20.35 12.01 13.31 13.65 11.75 12.68 12.84 11.59 12.37 12.40 13 18 13.85 14.51 13.13 13.91 14.38 9.11 9.56 10.11 13.79 14.21 14.79 14.95 15.53 15.21 12.91 13.55 13.62 19.08 15.93 14.70 15.02 14.79 13.36 12.62 12.99 12.28 13.88 14,13 12.98 17.19 16.14 14.43 16.58 15.49 13.94 20.16 19.43 18.05 13.01 13.65 13.51 12.57 13.19 13.12 12.14 12.80 12.69 14.12 14.90 14 71 14.17 14.58 14.41 9.66 10.10 10.16 14.90 15.13 15.40 14.87 15.24 15.74 13.55 14.13 14.18 15.72 18.52 19.10 13.69 16.30 14.73 12.79 14.29 13.22 13.43 15.33 13.95 15.08 18.27 16.90 14.56 17.56 16.32 17.15 19.61 20.03 14.09 15.08 14.29 13.68 14.10 13.47 13.20 13.60 12.96 15.68 15.H8 14.76 15.48 15.48 14.81 10.62 10.79 10.67 15.58 16.40 16.70 16.54 16.93 16.17 14.59 15.31 15.02 19.04 17.82 15.87 18.84 19.93 18.76 19.05 18.54 14.95 15.51 14.70 14.25 14.68 14.74 15.17 15.23 13.91 14.70 14.53 13.23 13.51 13.58 14.15 14.24 14.40 15,55 15.06 13.62 14.05 14.21 15.32 14.79 17.76 11.96 16.84 17.00 17.52 17.o4 17.'0 11.01 17.00 17.23 16.09 16.28 16.80 16.89 17.16 17.21 20.39 20.50 20.08 20.00 20.07 20.50 20.50 20.50 15.15 16.00 16.22 14.48 14.71 14.82 15.39 15.48 14.28 14.94 15.32 13.79 13.98 14.05 14.41 14.51 13.59 16. o0 15.73 16.82 17.26 14.94 15.04 15.67 16.05 16.55 11.14 12.26 12.92 10.85 10.97 11.09 11.34 11.44 16.83 17.29 18.16 16.64 16.79 16.74 16.88 17.11 16.65 17.63 18.99 -16.43 16.87 15.76 16.67 17.06 15.33 15.55 15.56 16.17 5 12 19 26 18.25 18.29 18.19 17.41 15.21 15.23 15.61 15.70 14.47 14.46 14.67 14.89 15.57 15.12 15.64 15.85 17.94 17.91 1H.O0 18.07 17.22 17.23 17.36 17.22 20.50 20.50 20.50 20.50 15.83 15.64 15.92 16.25 14.84 14.67 14.73 15.17 14.10 13.89 13.93 14.40 16.68 16.63 16.80 17.15 11.63 11.94 12.49 12.97 17.13 17.27 17.26 17.48 17.27 Sept.2 9 16 23 30 16.89 16.50 16.09 15.33 15.00 15.57 15.55 14.52 14.32 14,23 14.98 15.05 14.41 14.07 14.48 15.65 15.80 14.66 14.13 14.93 17.77 17.78 16.98 16.17 16.19 16.97 16.97 16.29 15.44 15.46 20.50 20.50 20.36 19.86 19.50 16.41 16.54 16.15 15.82 16.34 15.37 15.53 15.15 14.98 15.65 14.65 14.85 14.51 14.30 17.50 17.52 16.92 17.18 17.75p 13.10 13.21 12.79 12.57 12.93 17.79 18.22 18.27 18.36 n.a. 18.37 14.39 16.96 16.80p 14.30 14.57 14.65 14.50 14.63 14.39 16.04 16.71 16.80 15.29 15.89 16.15 19.50 19.50 19.50 16.37 16.40 16.1nP 15.68 15.75 15.43P 15.08 15.14 Oct. Nov. Dec. 1981--Jan. Feb. HMar. Apr. May June July Aug. Sept. 1981--July 1 8 15 22 29 Aug. Daily--Sept. 25 1 Oct. 2 NOTE Weekly data for columns 1. 2, 3, and 6 through 10 are statement week averages of daily data Weekly data in column 4 are average rates set m the auction of 6 month hills that will be issued on the Thursday following the end of the statement week For column 11, the weekly date is the mid point of the calendar week over which data are averaged Columns 12 and 13 are 1 day quotes for Friday and Thursday, respectively, following the end of the statement week Column 14 is an average of ron tract interest rates on commitments for conventional first mortgages with 80 percent loan to value 14.17 14.67 17.17 13.23 13.35 13.38 13.68 13.77 15.72 16.41 16 73 17.55 17.62 16.87 16.79 15.03 14.80P - -- 17.24 -- - 18.74 -19.23 15.96 16.55 16.04 16.21 17.28 17.26 17.41 17.05 16.33 17.46 - ratios made by a sample of Insured savings and loan associations on the Friday following the end of the statement week The FNMA auction yield is the average yield in a bi weekly auction for short term forward commitments for government underwritten mortgages, figures exclude graduated payment mortgages GNMA yields are average net yivpils to investors on mortgage backed securities for immediate delivery, assuming prepayment in 12 year on pools of 30 year FHA/VA mortgages carrying the coupon rate 50 basis points below the current F IA/VA celingq rn . 1', ,- Table 2 October 5, 1981 Net Changes In System Holdings of Securities1 Millions of dollars, not seasonally adjusted Period Treasury bills net2 change Treasury coupons net purchases thin 1-year 3 Federal agencies net purchases 10 1-5 510 over to Stotal 863 4,361 870 6,243 -3,052 1980--Qtr. 1981--Qtr. I 11 II III 1981--Apr. May June July Aug. Sept. 1981--July Aug. Sept. 1 8 15 22 29 3,025 2,833 4,188 3,456 2,138 1,048 758 1,526 523 703 642 553 1,063 454 811 5,187 4,660 7,962 5,035 4,564 -3,298 -58 137 100 541 236 320 -2,514 2,135 2,912 -23 115 122 469 607 164 64 89 182 115 469 164 89 122 607 15 510 4 over 10 total 1,234 100 1,225 1,379 308 11l IV 472 517 1,184 603 912 1,141 790 204 1976 1977 1978 1979 1980 withIn within 1-year 105 891 1,433 127 454 668 Net change outright holdings ? total Not RPs' 347 978 -100 122 607 64 -2,157 -1 -1,381 1,107 -23 836 976 -2,555 2,944 3,855 -1,694 -1,352 425 836 1,975 790 179 -588 -2,166 1,502 976 182 3,607 -2,892 -1,774 -2,597 2,462 2,200 1,379 275 1,768 -843 -500 -13 64 6,227 10,035 8,724 10,290 2,035 917 5,241 -4,104 3,894 -4,105 -47 131 217 976 182 1,322 978 -100 5 12 19 26 915 797 915 797 -85 -710 -898 3,021 -3,699 2 9 16 23 30 -604 -627 250 1,160 -204 -604 -627 217 1,160 -204 2,692 282 -1,716 474 -206 135.6 -2.6 LEVEL--Sept. 30 49.5 15.0 34.7 11,5 16.2 77.4 I Change from end-of-period to end of period. 2 Outright transactions in market and with foreign accounts, and redemptions (-) In bill auctions, 3 Outright transactions in market and with foreign accounts, and short term notes acquired in ex change for maturing bills Excludes redemptions, maturity shifts, rollovers of maturing coupon issues, and direct Treasury borrowing from the System 4 Outright transactions in market and with foreign accounts only Excludes redemptions and maturity shifts 2.4 4.7 1.0 0.6 8.7 5 In addition to the net purchases of securities, also reflects changes in System holdings of bankers' acceptances, direct TrPasury borrowing from the System and redemptions (-) of agency and Treasury coupon issues. 6 Includes changes in RPs I(), matched sale purchase transactions (-I, and matched purchase sale transactions (+) FR 1368 (7/81) STRICTLY CONFIDENTIAL (FR) CLASS II-FOMC Table 3 Security Dealer Positions and Bank Positions October 5, 1981 Millions of dollars Underwriting syndicate p U S government securities dealer positions Period cash coupons _____bills 1980--High lulumcs and forwards brll, noupons- - _. ons syndicate positions corporate municipal bonds bonds excess sxte adjstment ee Member bank reserve puslions Memb bank resro t pRB *tons borrowing at FA '* d Extended seasonal nc_ dps pecial _ total _ta 8,838 2,263 299 466 881 3,298 174 816 3,438 1,972 Lom -1,482 0 22 19 12 5 0 215 -3,599 -2,514** 83 0 268 19 508 -95 2,597 570 309 99 236 * 2,912 766 1981--High Low 15,668 1,273 4,633 965** 1980--Aug. Sept. 5,108 3,681 798 -416 3,081 414 -1,974 -1,185 91 24 153 171 302 256 408 1,253 9 25 241 33 658 1,311 Oct. Nov. Dec. 2,447 3,047 4,287 143 149 20 -1,556 -7,068 -9,812 -1,685 -2,663 -2,751 14 17 6 114 57 70 206 521 468 1,244 1,963 1,571 66 97 116 * * 3 1,310 2,059 1,690 1981--Jan. Feb. Har. 9,985 13,317 13,579 1,584 1,812 3,415 -11,976 -12,203 -11,561 -2,884 -2,798 -3,251 8 8 46 68 95 124 310 276 248 1,204 1,135 789 120 148 196 22 21 15 1,395 1,303 1,000 Apr. May June 8,518 1,676 5,547 3,149 2,745 3,278 -7,277 -6,486 -9,914 -3,050 -2,822 -2,925 15 2 42 194 110 192 127 175 249 1,168 1,154 1,'39 162 269 291 8 5 7 1,338 2,228 2,037 July Aug. Sept. July 1 8 15 22 29 2,950 4,324 5,611** 3,046 3,224 3,349 2,756 2,732 3,314 2,242 1,614** 3,255 4,385 3,380 2,285 3,367 -8,340 -10,071 -9,810** -9,411 -8,46, -7, t) -8,712 -8,528 -3,012 -2,972 -2,856** -2,799 -3,111 -3,053 -3,089 -2,930 5 6 153 65 3 0 15 7 0 257 120 137 135 115 250 202 3 8 3 p 345 330 63 309 298 1,429 1,105 933p 1,425 1,622 1,051 1,483 1,717 247 235 222p 306 242 241 244 257 3 80 301p 4 2 3 3 4 1,679 1,420 1,456p 1,735 1,866 1,295 1,730 1,978 2,985 4,215 4,711 5,030 2,064 2,696 2,011 2,126 -7,606 -8,879 -10,997 -11,436 -2,794 -2,828 -2,988 -3,093 0 0 25 0 67 60 68 65 206 322 217 214 J86 1,045 1,167 1,325 228 223 231 246 4 3 59 155 1,118 1,271 1,457 1,726 4,453 6,859** 7,008** 5,944** 2,689** 2,366 1,539** 965** 2,005** 1,742** -11,278 -11,135** -10,160'* -9,657** -8,070** -3,067 -2,514** -2,703* -3,019** -3,116** 0 8 0 25 23 65 19 52 84 58 251 353 25sp 8 27 p 494p 1,011 1,132 857p 891p 8 82 p 246 217 205p 230p 23 1p 191 236 87 2 p 325p 38 7 p 1,448 1,585 34 1, 9p 1/46p 6 1,44 p Aug. 5 12 19 26 Sept.2 9 16 23 30 -12,865 -5,930 dealer NOTE: Government securities cash positions consist of securities already delivered, commit ments to buy (sell) securities on an outright basis for immediati drievery (5 business days or less), and certain "when issued" securities for delayed delivery (more than 5 business days Futures and forward positions include all other commitments involvinq delayed drivwry, futures contracts are arranged on organized exchanges Underwriting syndicate positions consists of issues in syndicate, excluding trading positions. Weekly data are daily averaqes for statement weeks, except for corporate and municipal issue in Monthly averages for excess reserves and borrowing are weighted syndicate, which are Friday fiqires end of month averages of statement week figures. Monthly data for dealer futures and forwards are figures for 1980 **Strictly confidential FR 138 (7/81)
@FedFRASER