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- • • • DIVISION o r I N T E R N A T I O N A L F I N A N C E H.13 NO. v BOARD OF e O V E R N O R S ; OF THE iu5 April 8 , 196U. i CAPITAL MARKET DEVELOPMENTS ABROAD ^ " I. United Kingdom II. Nine Charts on Financial Markets Abroad United Kingdom: Money and Capital Markets in March, 196U During March, the pace of activity in British financial markets appears to have slowed down as investors and traders awaited the 196U-65 budget which will be introduced on April lU. In general, adjustments to the February 27 rise in Bank Rate had been completed by early March. During the course of the month, bond yields drifted steadily down especially on long-term and undated issues;tinApril 3 yields on typical Treasury securities were lower than they had been on February 26, just before the Bank Rate action. (See Table 1.) By contrast, short-term money rates were at a higher level; but the Treasury bill yield rose only about 60 basis points (compared with the 1 per cent rise in Bank Rate) and the arbitrage incentive actually remained fractionally in favor of the U.S. Treasury bill throughout March. (See Table 1.) Stock prices were stable during the month. Table 1. United Kingdom: Selected Money Market and Bond Yields JAnuary 2U-April 3, 196U (In per cent per annum) MONEY MARKET Bank rate Treasury bill (tender) Day-to-day money Local authority deposits (3-month) Euro-dollar (3-month), London U.31 U,oo COVERED ARBITRAGE (favor U.K.) U.K./U.S. Treasury bills -.23 STOCK "PRICES z (April 10, 1962-100) y 111.6 GOVERNMENT BOND' YIELDS 1967 5# 1971 5-1/2# 2008-12 3-1/2# War Loan 5% a/ February 28 26 -•35 April 3 •5.00 U.30 . U.12 —— 5.19 5.12 5.12 5.06 U.06 Utl2 •U.31' U.25 ' U.25 —.28 -•09 -.02 -.07 -.11 111.9 5.10 5.30 6.08 6.18 279.52 —.Uo 111.6 113.6 113.2 113.8 U.95 6.12 5.00 5.31 5.98 6.06 279.77 279.78 279.82 279.88 -.66 -.71 -.77 5.18 5.08 5.35 5.38 6.05 6.10 6.20 Financial Times-Actuaries 500 share index. April 10, 1962-100 20 5.00 u.30 U.12 3.75 279.79 March 5.00 U.30 U.25 . L .00 3.72 3.00 5.02 5.92 5.98 6 5.00 U.30 3.75 iwOO lt.72 EXCHANGE RATES Spot (U.S. cents) 3-month Forward discount (in per cent per annum): . k 2h 11 January OFFICIAL USE ONLY (Decontrolled after six months) 5.30 5.88 S.95 OFFICIAL USE ONLY - 2 - The repercussions of the Bank Rate action began to be seen outside organized financial markets. Most hire-purchase companies are reported to be reviewing their rates and many have already decided to raise the charges on new car financing from 7-1/2 to 8 per cent per annum. The hire-purchase companies appear to have raised their rates on fully-hedged U.S. dollar deposits in search for funds. (See Chart 1.) In the housing field, the building societies have apparently decided to hold mortgage rates firm; earlier there had been an easier tendency in this area. In the foreign-exchange market, the spot pound climbed from 279.52 U.S. cents on February 26 to 279-77 cents on February 28 and to 279-88 cents on April 3. Official reserves rose $3U million in March. Two new U.S. dollar bonds were offered in London during March, one a $10 million Norwegian hydro-electric power company offering. A strong demand for U.S. dollar securities developed from the Continent between March 23 and 25 (after the proposed German withholding tax op bonds held by non-residents had been announced) and facilitated the private placing of a $25 million 20-year 5-1/2 per cent Kingdom of Denmark offering. Money market. Money was seasonally tight throughout March, as tax payments were transferred from the commercial banks to the Treasury. The Bank of England relieved credit shortages by buying Treasury bills, and the discount market was at no time required to borrow from the Bank of England# A very large amount of assistance was required on March 2h and 31, the last two Tuesday's of the month. Day-to-day lending rates remained close to the U-l/U per cent maximum, but they eased slightly during the course of the month* (See Table 1.) Since the Bank Rate action, the Treasury bill average tender rate has remained steady at U.30 per cent and the market rate for bills has held at U.16 per cent. (See Table 8 and Chart 3.) The gap of 70 basis points between the Treasury bill tender rate and the Bank rate (5£) is considered a more normal one than the 25-30 point differential which prevailed during the past year. In the Euro-dollar market, rates remained steady throughout March, with 3-month deposits yielding U-l/U per cent. (See Table 8 and Charts 1 and 5 0 Virtually no business was done in the local authority mortgage market in March, in' view of the fact that loans would be available from the Public Works Loan Board commencing April 1. Arbitrage yield spreads *between U.S. and U.K. 3-month money market assets changed little during March. (See Chart 1.) The covered Treasury bill differential continued to favor New York by a fractional amount. (See Table 2 and Chart 3.) The uncovered differential is now 6U points in favor of London. Local authority deposits (fully-hedged) have maintained a l6-point advantage over Euro-dollar deposits. The differential of Euro-dollar deposits in London over negotiable certificates of time deposits in New York diminished slightly in March, but it still remains some 10 basis points above the February level. OFFICIAL USE ONLY - 3 - OFFICIAL USE ONLY Table 2. U.S./U.K. Short-term Money Market Yields and Yield Spreads (in per cent per a n n u m ) . 1963 Nov. Jan. 29 31 TIME DEPOSITS (3-month) U.S. dollar: ~* ... N.Y. - Certf. deposit 2lE/ London - Euro-$ Sterling (covered) Local authorities Finance Houses 3.82 U.12 196U Feb. __ 21 2(T 5" March 13 20 26 3.88 3.9U 3.8U U.06 3.8U U.12 3.91 U.31 3.92 U.25 3.93 U.25 3.95 U.25 U.12 3*^7 U.10 3.8$ U.01 3.85 U.53 U.35 U.U6 U.35 U.29 U.35 U.Ul U.25 U.Ul U.20 YIELD SPREADS (Favor U.K.) Treasury bills (3-month)c/ Uncovered **" .1U .13 Covered -»o5 —.18 Euro-# - N.Y. G/D a/ .2U .30 Euro-$ - Local Authority (covered) — .13 .12 -.25 .60 -.09 .22 .22 •6U .63 •6k -.02 .Uo .15 — .02 .32 .06 .6U -.07 .30 .16 .22 -.11 -.07 .32 .16 a7 Previous Wednesdays. ' " • b/ Secondary market offering rates for negotiable time certificates of deposits, c/ U.S. and U.K. bill rates are shown in Table 8. See also Chart 3. In the local authorities market, the demand for short-term funds was strong throughout March to meet end-year requirements. Ample supplies were available during the first half of the month from both domestic and foreign sources; towards the end of the month, however, money became relatively scarce as the inflow of funds from abroad ceased. The yield on three-month deposits was steady for most of the month at 5.12 per cent. (See Table 8 and Chart 3.) , The City of Manchester offered on March 11 a second one-year bond, carrying a.5 per cent coupon and sold at par. This issue, like its predecessor of February 26, has a maturity of one day more than the loans controlled under the new arrangements which went into effect on April 1. Both the Treasury and the Bank of England expressed displeasure with the one-year bonds; the Bank stated that it would not accept them as collateral for loans to the discount market, but most of the joint-stock banks have agreed to accept them as collateral on their own money loans to the discount market. Therefore, Manchester was able to distribute this new loan to all the discount houses, and not limit placement to only one or two as with the first issue. . OFFICIAL USE ONLY OFFICIAL USE ONLY - L - Bond Market, The government securities market was generally quiet throughout the month, mainly because of uncertainties about the forthcoming budget and the impending election. However, after the middle of the month, bond prices generally rose. By the end of March, yields fell to levels slightly below those prevailing in mid-February. (See Table 9 and Chart 6.) The recovery was strongest in the long-term and undated issues. The first large purchases have been reported of the long-term tap issue placed February (the 5-lA P e r cent 1978-80 Bond). In the week ending March 20, institutional buyers made heavy purchases, mainly switching out of the 5-1/2 per cent 1982-8U issue. New issues in March were very substantial, although not as large as in January (see Table 3)3 but the value of new issues in the first quarter, was two thirds larger than the value of new issues in the comparable period of 1963. Table 3« United Kingdom: Capital Issues and Redemptions (in millions of pounds) U.K. borrowers 1/ Public companiels Local authorities Overseas borrowers Commonwealth Other countries Total of which Gross issues Gross redemptions 1962 1963 U32.1 135.6 li29.li 92.5 8.2 15.8 -10.0 Jan.-March 1953 195H Jan. Feb. March 108.7 177.2 19.9 16.1 0.7 #5.9 338% (631.6) (65.7) X6U6.9) (108.5) (l50.W(2lt9.9) C L O O . U ) ( 6 0 . 9 ) ( 8 8 . 6 ) ( 19.0) ( 28.7) ( 11.2) ( M 0-2.9) 1/ Excluding government securities. A major feature of new issues in March was arance of the Newcastle-upon-Tyne's £10 million 5-1/2 per cent 1975-77 bond<"on'March 25. Somewhat to the surprise of the market, over 70 per cent of the issue was left with the underwriters. This was the first new local authority bond since difficulties were encountered in placing the London County Council's £10 million issue in January. The only overseas issue in March was a £1.5 million 6-1/2 per cent Barbados Government 1975-77 bond which offered a 7.10 per cent gross redemption yield shortly after trading began. The major industrial new issues in March were stock and bond flotations by English Electric, amounting to about £16 million. Two new dollar-denominated security issues were floated in London in March. On MarcTTW%^deaT3jigs^EegannE^~$I51SIIion 6 per cent 197U-81* OFFICIAL USE ONLY OFFICIAL USE ONLY - 5 - First Mortgage Loan of Aktieselskabet Tyssefaldene, a Norweigian hydroelectric power company. .This is the first dollar bond issue to be floated in London by an industrial company without any connection with a governmental unit. The Taisho Marine and Fire Insurance Company (Japan) offered $2 million of Common stock on March 26 in 10 share unites at 50 yen per share. While this is the equivalent of 17s 6d ($2.U5) per unit, they were made available in U.S. dollars at $2*20, a discount of 10 per cent. Taisho, therefore, absorbed the investment dollar premium instead of the U.K. investor. Between March 23 and March 25, there was a strong Continental demand for dollar loans in London following the proposal in Germany of a 25 per cent withholding tax on the yield on fixed interest bonds held by non-residents. This is said to have made possible the completion of private placings for $25 million Kingdom of Denmark 5-1/2 per cent 20-year dollar bonds. The details of this issue are to be announced in April, A $20 million issue for the City of Tokyo is expected in the latter part of April. Stock Market. The stock market was restrained by the prospect that the new budget might increase taxes on corporate profits or might attempt to slow down the growth of personal consumption expenditures. The statement by Chancellor of the Exchequer Maudling early in March that there is a need for "substantially increased sums from the taxpayers" brought a perceptible dip in stock prices. (See Table 9 and Chart 7.) The market recovered in midMarch following the news of widespread increases in corporate profits, but at the end of the month the market once again was dull—partly because of the budget being so near at hand, but also because of labor unrest, political uncertainties and absorption of a considerable volume of new issues. London Clearing Banks. Bank advances, seasonally adjusted, increased by about £15 million in the month ending March 18, which was well below the extraordinarily large £65 million in the previous month. (See Table U«) Deposits, which normally fall this time of the year with the payment of end-fiscal year tax payments, rose in March by£35 million. This reflects the expansion of credit to finance the current growth in production. The banks disposed of £32 million of government bonds and £59 million of Treasury bills and call loans to the discount houses. Half of the expansion in bank advances during the three-months from mid-November through mid-February in this period was in consumer credit. It is believed that the commercial banks' loans for financing personal consumption have grown more rapidly than installment credit advanced by finance companies and department stores. Advances to manufacturing industries increased little more than seasonally in this period, mainly because companies raised substantial sums through new securities issues. • Foreign Trade. In February the trade balance recovered to the December level. (See Table 5») The main feature continues to be the high level of fuel and industrial materials imports, which apparently are accompanying the current growth of inventories. At the same time, imports of finished manufactures in the months of December through February rose well above the levels sustained in the last nine months of 1963. Half of the growth in finished manufactures imports is accounted for by machinery. OFFICIAL USE ONLY 6 - OFFICIAL USE ONLY Table U» 1 United Kingdom; London Clearing Banks Net Deposits, and Selected Assets (In millions of pounds) Changes s 1963 Oct. Nov, Dec* Jan. NET DEPOSITS SELECTED ASSETS Claims on the Public Sector Government bonds Treasury bills and loans to the Discount Market Loans to nationalized industries Total •*+107 +U9 +65 +128 +21 +25 + k +11 - 6U - 3 2 1,079 +37 +28 +30 +70 -313. -59 1,217 +19 - 7 - 5 + 8 + 6 -10 - 3 7 1 -1ST 68 2735E +15U +57 7 +U6 +1U7 +103 U,ll48 68U +77 Claims on the.Private Sector Advances (net) Other b/ Total - 7 - 9 SEASONALLY ADJUSTED Advances (net) Deposits (net) +23 +72 32.3 LIQUIDITY RATIO Outstanding 196it - 2 +1U +29 +85 + 5 + 2. +12 +39 ;+ 7 +51 +39 +8U +30 + 5 +1U +33 32.2 32.7 33.0 -2U7 +15 7,617 UT832 ' «- 65 %4l5 + 1 3 Si-50 29.9 29.7 a/ To the third Wednesday of the month, except in December when the change is to the second Wednesday, b/ Includes commercial billss call loans other than to the discount market,1 and other investments. c/ Estimate. The current trend in exports is difficult to assess in that the January export figures do not reflect a full month's trade, owing to a change in the. procedures of compilation®, (Exporters were given more time to file exchange control documents relating to exports to non-sterling countries.) Therefore, comparisons of the December through February figures with previous periods tend to understate the rate of growth Foreign-exchange market. The spot rate rose from 279.78 cents per pound on March 13 to 279.88 cents per pound on April 3* reflecting the strengthening of sterling in the latter part of the month. (See Table 8 and Chart 8.) Uncertainty, however, has led to a ten-point widening of the 3-month forward discount between early March and early April. (See Table 8 and Chart 9.) The investment do3^r premium fluctuated between 11 and 12 per cent during March, OFFICIAL USE ONLY OFFICIAL USE ONLY Table 5* United Kingdom: Foreign Trade (Millions of poundsj seasonally adjusted; monthly averages) 196k 1963 1st 2nd 3rd Uth Sfept. E&c. (%r. Qtr. Qtr. Qtr. Nbv. % b . Nov, Dsc. An. feb. Imports, c.i.f. Food, beverages, and tobacco Fuels and industrial materials Finished manufactures and other Total a/ Exports, f.o.b. Re-exports, f.o.b. Trade balance, customs returns Trade balance, balance of payments basis b/ 126 liil 118 1U3 1U3 151 1U7 1U5 157 151 195 200 209 220 215 233 216 235 233 231 56 57 59 57 53 375 395 H l 2 W2 m 67 58 Tgo H 2 2 63 362 327 335 12 -36 3U6 _13 _13 3U8 3hh 352 3U2 _13 12 lk -U7 -53 -61 -59 + 7 - 2 - 9 -12 —12 67 W 68 HFo 326 3 6 9 11 12 -86 -66 -68 -120 .-69 -33 -19 -13 -72 -12 b/ Customs returns adjusted for valuation and coverage,nainly revaluing imports from a cei.f. to an f#o,b, basis. Fourth quarter and 196k figures are preliminary and are subject to substantial revisions, - - Gold and foreign exchange reserves. In spite of the deterioration of the trade balance, reserves rose by $3U million in March to $2,660.0 million. (See Table 6.) In the first quarter of 196U as a whole, reserves inched up by $3 million. Bullion Market. Heavy gold purchases took place during the first week in March owing to the political uncertainties surrounding the Cyprus crisis. The fixing price accordingly, rose from $35,080 per fine ounce on February 28 to $35*096 per fine ounce on March 6. (See Table ?•) During the remainder of the month, the London gold market was dominated by Russian gold sales® Large-scale transactions were reported between March 6 and March 19 and again at the end of the month. The fixing price fell to $35>#060 per fine ounce on March 20. OFFICIAL USE ONLY OFFICIAL USE ONLY - o - Table 6. United Kingdoms Reserve Position (in millions of U.S. dollars) * ~~~~ Changes: 1963 1961* ' Uth 1st Outstanding Year Qtr. Qtr, Jan. Feb. March March 31, 19&U A. Gold and convertible currencies -2li9 Less: Central bank loans ftJ — Less: U.S. opns. in sterling b/ + 33 Adjusted Reserves -182 B. Drawing rights on IMF Total -78 + 3 — — +17 — -U8 — +3U — n.a. —* -78 n.a. +17 —— -k& n.a. n.a. + 3 n.a. —^2,Ui2.0 -hS 5,102,0 - 13 -195 — n.a. — -78 n.a. +17 2,660.0 a7 Covers $250 million assistance received in February and March and repaid in June. b/ As published in the Federal Reserve Bulletin. September 1963, and March 196U. c/ As of February 29, 196L. Table 7* London Fixing Price for Gold (in U.S. dollars per fine ounce) January 17 2U 31 February 7 35.087 35.08U 35.078 35.078 February lit 20 28 March 6 35*076 35.079 35.080 35.096 Europe and British Commonwealth-Suction. OFFICIAL USE ONLY March 13 20 26 ^ April 3 35*077 35-060 35.081 35.082 - 9 Table 8. United Kingdom: Treasury Bill Yields and Exchange Bates Treasury bill arbitrage calculation In favor fer1. Mffe TT737 pound ence U.K, bill Tlih Low 196U Jan. 3 10 17' 2k 31 Feb. 7 lU 21 28 March 6 g26 April 3 a/ 3.58 3.31 3.32 3.61 3.61 3.51 3.52 3.52 3.U9 3.U8 3.U9 3.50 3.52 3.56 3.52 3.53 3.52 3.52 3.50 .26 2.8$ 3.61 3.61 3.61 3.6U 3.6U 3.61 L.16 U.16 U.16 U.16 U.16 U.l6 -.03 -1.08 •U6 .10 -.2U -•35 -.31 -.35 -.31 .09 .09 .12 .13 .15 -UU .12 -.U5 -37 .lU .60 —#69 -.66 •6U .63 .6U .66 +.23 -.62 280.59 279+59 U.62 3.56 -.1U —.26 -.22 —23 -.18 -.29 -.31 -.25 ^79.73 279.87 279.87 279.79 279.77 279.78 279.7k 279.13 279.77 279.78 279.78 279.82 279.81 279.88 > 1 2 U.00 -.09 -.02 -.02 -.63 -.71 -.71 -,77 .61 Spot London deposit rates pound U.S. Local (U.S. dollar authority cents) 3r (3-#o.) -.07 —.07 -.11 4.00 U.00 U.12 U.00 L.oo U.06 U.12 u.31 U.25 4.25 a,25 U.25 U.88 U.06 U.UU U.31 u.31 . U.31 U.38 U.38 U.38 U.38 5.19 5.12 5.00 5.12 5.12 5.06 Certified N.Y. noon buying rate. Table 9. United Kingdom: Selected Capital Market Yields 5% _126L 1963 High Low 5.02 U.38 O.K. Government bond yields 3* 1965-75 2 9 16 Feb. March April 23 30 6 13 20 27 5 12 19 25 2 W 2 U.75 U.70 U.72 U.70 U.75 U.75 U.88 5.15 5.08 5.08 5.00 U.97 U.9U 2008-12 3-1/2? 2-1/2* War Loan Consols 5.UU U.76 6.00 5.U5 6.12 5.68 5.98 5.39 5.28 5.30 5.22 5.22 5.26 5.13 5.29 5.U1 5.51 5.52 5.50 5.U7 5.U3 5.U3 5.88 5.88 6.00 5.95 5.77 5.86 5.81 5.85 5.86 5.88 5.91 6.02 196U Jan, 5-1/y 5.93 5.90 5.93 5.92 5.95 6.05 6.10 6.05 6.00 5.98 5.95 5.88 Share yield Yield gw Share prices 5.06 117.2 U.13 95.6 U.15 U.23 U.35 U.37 U.U3 1.62 1.63 117,5 116.2 113-U 6.21 6.08 U.U2 1.U6 1.U8 1.U3 1.U2 1.52 1.57 1.66 6.15 6.10 6,06 6.05 5.95 5.97 5.95 5.92 5.90 5.83 U.35 U.3U U.37 U.38 U.29 1.62 113.2 1.61 1.55 1.52 1.5U 113.8 113.7 113.3 113.6 5.96 5.99 6.00 6.03 6.05 6.18 U.U6 U.39 U.U5 112.3 110.3 109.2 111.0 110.U lll.U financial Times-Actuaries 500 Share Index (April 10,1962=100). Share prices are wkly»avgs»• %/ Difference between yield on 2-1/2 per cent Consols and share yield. ¥ INTERNATIONAL MONEY 3-MONTH EURO Wednesday figure i DOLLAR MARKET YIELDS FOR DEPOSIT U.S. YORK QFFER DOLLAR OF INVESTORS! DEPOSIT 1 DIFFERENTIAL: NEW U.S. VS. CERTIFICATE RATES ON EUR O - D O L L A R CERTIFICATE SELECTED TREASURY OF OVER DEPOSIT 3-MONTH L BILLS-(Fully INVESTMENTS ' I Hedged! V COMMERCIAL PAPER.Fully [CANADIAN FINANCE COMPANY U . S . FINANCE COMPANY Hedged ' P e r cer»> INTEREST A R B I T R A G E , 3-MONTH UNITED STATES / CANADA T R E A S U R Y BILL R A T E S CANADA 'UNITED S T A T I C I..I . 1 1 RATE D I F F E R E N T I A L A N D 1 1 FORWARD 1 r~ 1 CANADIAN I—I- DOLLAR S P R E A D IN F A V O R Of CANADA + - . I RATE l-_. i . _ J _ J DIFFERENTIAL WITH J 1 J... | FORWARD EXCHANGE U COVER NET INCENTIVE IN F A V O R OF CANADA + 1 Li 1 Li 1 Li 1 LI 1 Li 1 Li 11-11 ii 1 jJ i s D j 1961 M s 1912 /" D M 1 J L_ 19 ASi Li.1 U s : D 11 11 ™1~ 11 1 lit*, 11 T V & INTEREST ARBITR A G E , N E W YORK/LONDON Friday ft g i 3-MONTH TREASURY BILL RATES U.K. LOCAI^AUTHORITV DEPOSITS RATE DIFFERENTIAL AND 3-MONTH FORWARD STERLING ~ S P R E A D I N F A V O R OF L O N D O N y I RATE DIFFERENTIAL WITH FORWARD EXCHANGE COVER INTEREST ARBITRAGE FOR GERMAN I 3-MONTH TREASURY EURO-DOLLAR BILLS, DEPOSIT COMMERCIAL B A N K S I I INTERBANK LENDING RATE A N D RATES GERMAN INTERBANK 10AN RATE EURO-POUAR LONDON GERMAN TREASURY B I U S RATE D I F F E R E N T I A L AND FORWARD DEUTSCHE MARK SPREAD IN FAVOR Of FRANKFURT: F O R W A R D RATI D I S C O U N T ( —) RATE DIFFERENTIAL WITH NET I N C E N T I V E : F FORWARD EXCHANGE COVER IN FAVOR OF F R A N K F U R T ( + ) I N T E R B A N K t o AN R A T E / \ — i 1963, * 1 SHORT-TERM INTEREST RATES * EURO-DOLLAR - LONDON f o r oil c ou n t n e i e x c e p t J o p o n *j"l3- monlh ( A v e r a g e r o l e on b o n k l o a n i o n d d i t c o u n l i l I LONG-TERM BOND YIELDS — I960 i r INPUSTRIAL STPCK INDICES «, , , , , =,00 t a l l o «col> • »0 100; »« 100 Swill Bank Corporation indoUriol Hock ind«« * /lopan: index ol 225 indui SPOT EXCHANGE RATES - M A J O R CURRENCIES AGAINST U.S. DOLLAR , par c e n Above Abo*» par F i m C H FRANC Below 1963 3-MONTH Fridoy FORWARD EXCHANGE RATE tigures AGAINST U.S. DOLLARS i.. AGAINST POUND STERLING - LONDON PREMIUM +• DISCOUNT AGAINST POUND STERLING - LONDON PRfMIUM + 1964
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