The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
DIVBIONJPF INTERNATIONAL FINANCE - ' ~ B O A R D O F ttOVERNORS •1 OF T H E | F E D E R A L R E S E R V E SYSTEM I:' 'I H.ra - — - s a M . No.!*' : g ~ - - A p r i l 2ij., 1961 CAPITAL MARKET DEVELOPMENTS ABROAD I. II. I. . Switzerland •. Five Charts on F i n a n c i a l Markets Abroad Switzerland; Money and C a p i t a l Markets During March F i n a n c i a l developments i n S witzer land i n March were dominated by r e p e r c u s s i o n s of t h e exchange r a t e changes i n Germany and t h e Netherlands«, The upward r e v a l u a t i o n s of t h e dentsche mark and t h e g u i l d e r p r e c i p i t a t e d a massive flow of funds i n t o Switzerland based on s p e c u l a t i o n of s i m i l a r a c t i o n i n r e s p e c t of t h e Swiss f r a n c . This i n f l o w produced a v e r y l a r g e a d d i t i o n t o t h e Swiss f r a n c b a l a n c e s of t h e commercial banks. To i n s u l a t e t h e economy from t h i s a d d i t i o n a l l i q u i d i t y , a t t h e end of t h e month t h e Swiss N a t i o n a l Bank f r o z e the b e t t e r p a r t of t h e i n c r e a s e i n t h e s e b a l a i c e s t h a t had t a k e n p l a c e i n March, ^ - • The i n t e r e s t r a t e on 3-months bank d e p o s i t s was reduced i n March, and demand f o r i n t e r b a n k c a l l l o a n s d r i e d up. Government bond y i e l d s i n March were once again a t a loUer l e v e l t h a n i n the preceding month, and d e c l i n e d f u r t h e r i n e a r l y A p r i l . Stock p r i c e s continued t o r i s e s h a r p l y through mid-March. The Swiss f r a n c was s t r o n g i n t h e week f o l l o w i n g t h e dautsche mark and g u i l d e r r e v a l u a t i o n s , but a t o t h e r times r u l e d g e n e r a l l y lower than i n J a n u a r y - F e b r u a r y . O f f i c i a l i n t e r n a t i o n a l r e s e r v e s of $2,5U3 m i l l i o n on A p r i l 7 were m i l l i o n h i g h e r than a t t h e end of F e b r u a r y . Money Market. In the f i r s t q u a r t e r of 1961, as d u r i n g i960, t h e Swiss money market showed a p e r s i s t e n t tendency towards r i s i n g l i q u i d i t y , because of S w i t z e r l a n d ' s balance of payments s u r p l u s . Although i n t e r e s t r a t e s have been kept low i n an e f f o r t t o discourage i n f l o w s of f o r e i g n c a p i t a l and r e flows of domestic c a p i t a l , money has flowed i n from abroad^ sometimes i n l a r g e amounts, f o r reasons u s u a l l y unconnected w i t h i n t e r e s t r a t e s . This happened on a massive s c a l e i n March. In the t e n days f o l l o w i n g t h e r e v a l u a t i o n s of t h e German and Dutch c u r r e n c i e s , t h e r e was an i n f l o w of funds from abroad i n excess of $300 m i l l i o n , motivated by s p e c u l a t i o n t h a t t h e Swiss f r a n c m i g h t , a l s o be r e v a l u e d upwards. This f o r e i g n exchange was taken up by t h e Swiss N a t i o n a l Bank even though i t s conversion meant a v e r y g r e a t a d d i t i o n t o commercial bank r e s e r v e s . Between February 28 and March 1$ b a l a n c e s at t h e c e n t r a l bank h e l d by NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS - 2 - commercial banks and by commercial and i n d u s t r i a l f i r m s r o s e by t h e e q u i v a l e n t of $332 m i l l i o n , or by U8 p e r c e n t . To keep t h e s e funds o f f t h e domestic market, a t t h e end of March t h e Swiss N a t i o n a l Bank f r o z e , f o r an i n d e f i n i t e p e r i o d , $2Ul m i l l i o n e q u i v a l e n t of commercial bank d e p o s i t s h e l d with i t 6 E a r l i e r , the banks had u t i l i z e d a p o r t i o n of t h e a c c r e t i o n t o t h e i r r e s e r v e s f o r t h e purchase of secured s t e r l i n g . The r a t e s p a i d on 3-^months d e p o s i t s with l a r g e banks i n Z u r i c h , which Jjad tended t o d e c l i n e i n January and February, were lowered f u r t h e r from 1 1.75 to 1.5>0 p e r c e n t i n the second week i n March. (See Chart U)„ Although t h e i n t e r b a n k c a l l loan r a t e i n Zurich remained a t 1 per c e n t through March 15, as of t h e l a t t e r d a t e t h e r e was no demand f o r c a l l money. Rate on 3-months deposits with l a r g e banks i n Zurich 1960 - High Low Dec..: 1961 - J a n . Feb. Mar.- 7 Mar. 15 Interbank c a l l loan r a t e i n Zurich 2.25 i.5o 2.Q8 1,50 l.oa 1.13 1.75 1.75 l.5o 1.00 1.81 1.00 1.00 1.00 Bond Market. ^Government bond y i e l d s were again lower i n March „ The y i e l d to m a t u r i t y on the Swiss Confederation 3% bond of 1967-72 averaged 2.86 per cent i n March as a g a i n s t 2.98 p e r c e n t i n January and 2,90 per cent i n February, and f e l l f u r t h e r t o 2.8L p e r c e n t i n t h e f i r s t h a l f of A p r i l . The r a t e s paid by banks on savings bonds l i k e w i s e showed a . g e n e r a l l y downward movement from t h e beginning of t h e y e a r through t h e middle, of March. The new mortgage r a t e of 3.7U per c e n t remained unchanged through March 15. Gov't bond yield 1961 - J a n . Feb. Mar. April 7 Hi 1 / Mar. 15 2.98 2.90 2.86 2.85 2.8k New mortgage rate ' 3.71 3:7b/ - I n t e r e s t on savings bonds 12 c a n t o n a l banks 5 l a r g e banks 1960 - Dec. 1961 - J a n . Feb. Mar. 31 31 28 15 3.3U 3.3U 3.29 3.29 3.33 3.33 3.33 3.31 New money r a i s e d by p u b l i c i s s u e s of s e c u r i t i e s i n January and February was s l i g h t l y l e s s t h a n i n t h e comparable p e r i o d of I960 but was w e l l above t h e average l e v e l f o r t h e y e a r i960, During March a l l new i s s u e s had a good r e c e p t i o n , with o v e r s u b s c r i p t i o n s t h e g e n e r a l r u l e . Foreign borrowings on t h e Swiss market were u n u s u a l l y heavy i n t h e f i r s t q u a r t e r of 1961. Fresh money r a i s e d by f o r e i g n l o a n s amounted t o t h e e q u i v a l e n t of $82 m i l l i o n , compared with q u a r t e r l y averages of $33 m i l l i o n i n i960 and $28 m i l l i o n i n 1959, Borrowers i n c l u d e d t h e IBRD ($23 m i l l i o n e q u i v a l e n t ) , the A u s t r a l i a n Government, t h e IBM World Trade C o r p o r a t i o n , and f i r m s i n t h e United Kingdom, I t a l y , t h e N e t h e r l a n d s , and P o r t u g a l . 1961 ( f r e s h money r a i s e d ) Amount ( m i l . $) Month Jan. Feb. Mar. IBM World Trade Corp.(USA) 13.95 SACOR ( P o r t u g a l ) ( s e r i a l ) :> 1.01 P h i l i p s ' Gloeilampen (Netherlands) 11.63 B r i t i s h Petroleum Co. Ltd., (UK) 13.95 Commonwealth of A u s t r a l i a 13.95 P i r e l l i S.A. ( I t a l y ) U.65 IBRD ( s e r i a l ) 23.26 Total Term 1971-76 1963-78 1973-79 1971-76 1971-76 1971-77 1971-79 Coupon rate Issue price Yield t o maturity 100.00 99.00 U.25 5.88 U.50 100,00 U.50 U.50 U.50 U.25 It.00 100.00 100.00 99.6 100.00 h.2$ 5.75 U.50 U.50 U.29 U.00 82.1*0 Foreign Borrowings. 1957-61 ( m i l l i o n $5 ** ^quarters HI 50.0 12.8 1961 27.5 82.lt 31.U Year 32.5 1 7 oil 53.5 . 1.1 31.8 111.5 129.8 1.1 1957 1958 1959 1960 " i r -0.7 31.3 17.U Quarterly average 0.3 8.0 27.9 32.5 - u - Stock Mayketo Demand f o r stocks continued to run very strong 0 The index of p r i c e s of 3 9 ' i n d u s t r i a l stocks rose by n e a r l y 5% in the two weeks from March 3 t o March 17, bringing i t t o a l e v e l 21 per cent higher than a t the end of December 1 9 6 0 (See fcart 5 ) o This i n c r e a s e comes i n t h e wake o f ; a 78 per cent r i s e i n t h e index f i r i n g t h e year l<?60o The r i s e i n stock p r i c e s has been e s p e c i a l l y sharp since August i960, when measures were introduced t o discourage ownership of bank d e p o s i t s by f o r e i g n e r s 0 Concern has been voiced over the extent of p u b l i c enthusiasm f o r s t o c k s , and the Association of Swiss Stock Exchanges r e p o r t e d l y requested brokerage firms t h a t beginning March 1 loans t o customers be l i m i t e d t o 50 per cent of t h e collateral* o Industrial share index i960 - Dec . 30 1961 - Jan. 27 Feb- 2I4. Mar. 3 10 17 195 216 227 225 235 236 Foreign Exchange 0 The Swiss f r a n c had weakened from mid-January through end-February, and i n the f i r s t week of March was quoted a t SF Uo336 » $1 compared t o approximately SF U.305 = #1 i n t h e f i r s t h a l f of January,, In j t h e week of March 6-12, when t h e r e was a heavy inflow of f u n d s , c e n t r a l bank l i n t e r v e n t i o n kept t h e d o l l a r from f a l l i n g below SF ho315 = $1= Subsequently the d o l l a r strengthened and i n t h e l a s t week of March touched SF L.322 = S i , I n t e r n a t i o n a l r e s e r v e s of t h e Swiss National Bank rose by $289 m i l l i o n between February 28 and March 15„ There was a d e c l i n e of $56 m i l l i o n i n gold r e s e r v e s between March 15 and 23, i n which period t h e Bank, together 1 with other Continental c e n t r a l banks, was engaged i n cooperation with the Bank i of England i n support of s t e r l i n g . Subsequent i n c r e a s e s through A p r i l 7 were r e l a t i v e l y small„ V i r t u a l l y a l l of t h e n e t i n c r e a s e i n r e s e r v e s s i n c e t h e end o f ' F e b r u a r y has been i n f o r e i g n exchange r a t h e r than gold* The holding of d o l l a r balances i n excess of t h e customary l e v e l was s a i d t o r e f l e c t expectat i o n of an e a r l y exodus of the newly-arrived funds, r a t h e r than a change i n policyo Swiss National Bank r e s e r v e s I m i l l i o n s of .p) Gold I960 - N o v . Dec. 1961 - F e b . Mar, 30 31 28 15 23 31 Apr. 7 European S e c t i o n . 2,059 2,185 2,163 2,225 2,169 2,166 2,182 Foreign ] 123 136 136 363 363 368 361 CANADA THREE-MONTH Thursday figurei RATE TREASURY DIFFERENTIAL AND BILL - UNITED STATES RATES FORW IAN DOLLAR V\ RATE DIFFERENTIAL WITH FORWARD EXCHANGE- COVER " 1959 I960 M61 INTEREST ARBITRAGE, NEW YORK / LONDON Friday figures 3 - M O N T H T R E A S U tY 1 BILL RATES 1 0 N D C IN \ K/^ , Anr L /"| V 'V- - \ V V - YORK I I i i I I 1 1 I 1 1 V"- 1 i r 1 1 1 1 RATE D I F F E R E N T I A L A N D 3-MONTH FORWARD STERLING SPREAD IN FAVOR OF LONDON RATE D I F F E R E N T I A L FORWARD WITH EXCHANGE COVER 1 1 1 1 1 1 INTEREST ARBITRAGE, NEW Y O R K / F R A N K F U R T 3 - M O N T H TREASURY BILL RATES A N D G E R M A N Y Friday figures LENDING RATE DIFFERENTIAL AtfD 3-MONTH BANK LENDING RATES Per cent per RATE _I/"A FORWARD DEUTSCHE MARK TREASURY BILLS FOCWAKO RATE DIFFERENTIAL WITH RATE FORWARD DISCOUKf <-) EXCHANGE COVE* rJ\ $ * I960 Note: 0 M J » m _ Special forward dollar role (either flol or premium on ipoi) available lo German commercial banki. $ ft SHORT-TERM INTEREST RATES * V ^ v 1 L us .ft K f n M |\ \T L X A Jvt M J \j-i\j /vA^yv 9WIUIRLAND 5 V/vJ i i i i i i i r i i i 1 1 1 L.U, 1 1 1 1 1 h— A/ V CAN* \: i t y ./N1 v JAPAN ~ ~ l v h z I pf\l " $ % v Ai1 7 / L V I \ i v > r " ' f p I1 - 1 1 1 ltSB 1 1 « l - 1. L I - < 1159 1960 " No?»:„ 3-month Ireeiory bill rotei lor oV countries •except Japan (over 3-month interbank defiosh rolei) and Switzerltiwd (.3-month depeiil role). 1961 INDUSTRIAL STOCK INDICES Tokyo exchonge.
@FedFRASER