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DIVISION OF INTERNATIONAL FINANCE BOARD OF OOVEHNORS OF THE H. 13 No. 159 August 5, 196U. CAPITAL MARKET DEVELOPMENTS ABROAD I. lie France Nine Charts on Financial Markets Abroad I. France: Money and Capital Markets, June to mid-July, 196U The Paris money market was less tight in June-July than in May. The easing was the result, at least in part, of deliberate efforts by the Bank of France to provide funds to the markete These efforts took the form of a two-stage reduction in June in the banks1 required liquidity ratio, which cut the compulsory percentage from 36 to 33 per cent, and helped to bring call money rates down markedly from their high May levels. Concurrently, the incentive to import short-term funds was reduced, and official reserve gains were smaller. in June-July than in May* Long-term interest rates changed little in the period under review* while stock prices, which had been falling continuously, rose 6 per cent in the three weeks ending July 15>, Liquid savings and total new security issues for the first five or six months of I96I4. show substantial increases over last year, a development which attests to the success of the French stabilization program. But a sharp year-to-year decline in flotations of private sector securities suggests a weakening, undesired by the authorities of private investment outlays in 196U® In the foreign exchange market, the spot franc remained at or near its ceiling almost continuously, while the discount on the forward franc narrowed sharply with the easing of the money market. The official reserve gains (adjusted for special official transactions) in June ($95 million) and through mid-July ($3h million) remained substantial but were well below the gain in May, The Franc-area payments surplus was provisionally estimated at $103 million in the first quarter of I96I4, less than half the surplus a year earlier. The surplus probably rose in the second quarter when the trade deficit was reduced, tourist receipts rose seasonally, and monetary stringency induced imports of short-term capital. Money market eased by liquidity ratio reduction In June the Bank of France twice lowered the liquidity ratio (coefficient de tresorerie) imposed on French commercial banks—from 36 to 3k per cent early in the month, and to 33 per cent in late June, These OFFICIAL USE ONLY (Decontrolled after six months) OFFICIAL USE ONLY — 2 — changes did not signify a relaxation of over-all credit restraint but were rather designed to help the Paris money market accommodate anticipated high seasonal demands for funds over the middle of the year® The authorities intended to restore the liquidity coefficient to 3h per cent after the money market strain expected at end-July had been met, and to 3 6 per cent by end- Augusts provided that seasonal tensions abate normally,, Call money and short-term interest rates had reached unusually high levels during May; it was feared that the high demands for accommodation over the- seasonally-tight June and July month-end periods would push these rates up still further, and provide continued incentive for large inflows of foreign exchange, such as developed during May and the first week of June. Judging by market developments, these measures were successful. The rate on day-to-day money against private paper fell from an average of 6618 per cent during May to b*93 per cent in June and then to an average of lw83% for the first four Thursdays in July, This decline is in sharp contrast to the rise of 135 basis points over the same period last year* (See Table 1„) Apart from the official policy steps, the Paris money market was dominated by seasonal influences in the period from June 12th through July 23rd. Through June 18 the market eased under the influence of large expenditures of the Treasury, the inflow of foreign exchange during the previous month, and the first reduction in the liquidity ratiog although the spot money market eased, the rate on one-month money rose sharply in anticipation of stringent month-end conditions0 By June 25th, when day-to-day money had risen to 5 per cent, money at one month was loaned at 6.19 per cmt, and the Bank of France reported that money for the 10 days over the month-end was not available at a bid rate of 7.25 per cent* The tightening of the market culminated in intense activity on June 30th, when the banks had to provide large sums for payment of business taxesj for^payments "to the social security fund, for settlement of the Electricite de France issue (the proceeds of which were removed from the market during the week of June 29th), and most importantly, to meet large withdrawals of currency in preparation for vacations• From July 1st through July 9th, the market eased substantially because of large Treasury expenditures. Conditions tightened somewhat after July 9th, because of the outflow of currency in connection with vacations® The auction rate on 1-year Treasury bills (free investments) rose 25 basis points to a yield of 3<>56 per cent in a fairly steady movement from May 28th through July 15* (See Table 1<>) These bills may be used to satisfy the banks1 required liquidity ratio<, The rise in the rate of return probably reflects both (i) the increase in the amounts of bills offered, and (ii) the decreased need of the. banks for holdings of bills, reflecting the successive reductions in the liquidity coefficient. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 1« Monthly Average March April May June July -3 - France: Money Rates and Treasury Bill Auctions, 1963-64 Day-to-day Money-/ Against Private Paper as Collateral 1963 1964 % p.a. % P«a. 3»43 3.92 3.91 1.76 5.26 k,98 5.05 6.18 2/4.93 2/k"83 Treasury 1-jear Bill Auction! Date Amount FF Million Rate % p.a, March 16 April 15 May 15 200 100 100 3.hi 3.U5 3.3b May 28 June 5 _15 25 July 6 15 100 100 150 2^0 4oo 400 3.31 3.3k 3.38 3.U1 3.50 3.56 Daily Average 2/ May 28 June 4 11 18 25 July 2 9 16 23 ho$6 , 5.13 3.# Iul3 6.25 6.# 4.00 3.# 5.25 6,13 5«88 4.00 3.9k, 5.00 5.31 L.13 4.31 L.38 V Average of daily range, 1963 data for two days later—e.g., May 30, not May 28, ?/ Average of the first four Thursdays in the month. Sources: (i) Bank of France for daily quotesj (ii) INSEE, Bulletin Mensuel de Statistique, for monthly averages® Bond yields change little; stock prices rise Yields on major new security issues changed little from April to June, and were comparable to those on similar issues in the same period last year* The Credit National borrowed at 5 »56 per cent in April 1964, compared with 5.60 per cent in April 1963 j issues of the P.T.T» (the government, postal, telegraphic, and telephone network) were floated at 5.60 per cent both in June 196)4 and in June 1963. (See Table 2.) Market yields on outstanding issues moved narrowly from May 22 through June 17. The average yield on public sector bonds (Bank of France series) fell from 5-73 per cent on May 22 to 5=63 per cent on June 12, and then rose to £069 per cent on July 17. Yields on corporate issues fell 11 basis points to 6„29 per cent over the period May 22 to July 17. (See Table 3») OFFICIAL USE ONLY OFFICIAL USE ONLY - The weekly, index of French stock prices rose 6 per cent from a low of 73-3 on June 2h to 77.7 on July 15. The recovery of the market reportedly results in part from rumors that the Government intended to take steps to strengthen the market. During July it was also reported that the market was strengthened by foreign purchases. The average yield on stocks remains less than 2-1/2 per,cent# Table 2. France: Major New Issues and Yields to Lender, 1963-1961; April 1961; Caisse Nationale de Credit Agricole Credit National Grands Magasins "Au Printemps" Electricite de France 9-years 18-years P.T.To JDepart = de la Seine June 5.62 5.56 5.70 5.L5 5.67 5.60 5.62 April 1963 Groupement des industries agricoles, etCo "GoIoAoCo" Credit National Compagnie Generale d'Elect« Treasury Groupement des Indust. Mecanique P.T.T, May Per Year May % Per Year June 5.70 5.60 5.69 lultf 5.70 5.60 Savings forms show increase . Both 11 liquid and short-term savings" and new securities sold to the public rose over year-earlier levels during the first five and six months, respectively, of 196U, Both forms of savings combined amounted to about F 13*5 billion in 1961;, compared to F 11.8 billion over the same period last year = This increase of 11 per cent has contributed to the success of the stabilization plana OFFICIAL USE ONLY k OFFICIAL USE ONLY - 5 - Table 3. France: Bond and Stock Yields and Stock Prices, 1963-1961}. (Per cent per year; or index, 12/31/61 = 100) Long-term bond Yields MONTHLY AVERAGE March April May June May 22 29 1* 12 19 26 July 3 June 10 17 26 Public Sector 1955 w Corporates 1953™ 55E 5«U8 5.U5' 6,03 5.1a 5.66 5.66 5.70 5.66 5.52 5.5U 5.1i6 5.37 5.U2 5.38 5.48 5.46 5.38 5.21 5.73 5.71 5.65 5.63 5.66 5.69 5.72 5.71 5.69 n.a. 5.52 WEEK ENDING 2/ 1/ 6.02 6.05 6.09 6.08 6.06 6.10 6.12 6.10 6.05 6.09 6.06 6.00 5.96 Common Stocks — ^ Price Index (Weekly) Yield at ~~ 12/29/61 = 100 end-month 196IT 1955 1963 1953 6.33 1.73 6.33 1.80 97.1 97.2 93.6 91.7 83 .U 83.it 79.3 75.2 6<,lj.O 93.1 93.0 6.35 6.3k 6.33 6.32 6.31 6.29 n.a. 92.0 91.1 90.9 89.5 91.0 91.9 91.7 78.2 78.3 77.1 75.5 7U.7 73.3 77.5 77.5 77.7 n.a. 6.36 6.3L 1.83 1.73 2.09 2.08 2.22 6.36 6.36 92.6 1/ Monthly average bond yields are averages of weekly averages supplied by Bank of France. These data differ in level and movement from the yield series published by INSEE and the Conseil National de Credit, See previous (July 17, 1961*) French Capital Market. Indexed, participating, and tax-exempt issues excluded. 2/ Dates given for 196U. Hay 2kg not May 22. 3/ 1963 data generally are for week ending two days later—e.g., Monthly average stock prices are averages of weekly index* Sources: Bank of France, and INSEE, Bulletin Mensuel de Statistique. OFFICIAL USE ONLY OFFICIAL USE ONLY - 6 - New "liquid and short-term savings" in the first five months of 196U totalled F 5.U2 billion, up more than 27 per cent over the year-ago levele New savings were up sharply in both the first and second quarter of I96I4. compared to a year ago* The increases were channelled into bank time deposits and denosits with savings banks while investment in Treasury bills fellc (See Table W Table 4. France: Liquid and Short-term New Savings, 1963-1964 (Changes in billions of francs) Jan.-Mar. April-May £/ Jan.-May # / Public Treasury Bills 1964 (1963) .19 (.94) .07 (.36) .26 ( 1 30) 1.07 (.87) .04 (-.24) 2.94 (1.59) .34 (.15) 3.28 ( 1.74 ) .67 (.48) .10 (.11) ( 4.87 (3.88) .55 (.38) Bank Time Deposits and Deposit Certificates 1964 (1963) Deposits with Savings Banks 1964 (1963) ( 1.11 ,63) . . ; Certificates of the. Caisse Nationale de Credit Agricole 1964 (1963 ) 1964 / (1963) % Rise from year earlier p/ 26 Provisional Source: Conseil National du Credit OFFICIAL USE ONLY 45 .77 .59) 5.42 ( 4.26) 27% - 7 - OFFICIAL USE ONLY Table 5« France: New Securities Sold to Public, 1963-196U (billion francs or per cent per year) PUBLIC SECTOR i/ Treasury 196U (1963) Quarter I 1.50 ( — Quarter II — 2/ Total 1/ Jan,-June 1.50 ) (1.00) (1.00) All Other 196U (1963) 1.35 (2.39) .2.80 (1.29) iul5 (3.68) Total Public Sector 1961; (1963) % Rise, 196i;/l963: 2755 (2.39) " W "27BO (2.29) , (b.68)' "tig PRIVATE SECTOR Bonds l?61t (1963) Stocks and Participations 196J+ (1963) Total Private Sector 1961+ (1963) .% Rise, 196V1963: .13 ( .26) 1.10 .10 ( .33) 1.13 ( .93) (1.35) 1^3, (1.19) "3% O 3 (1.68) U.08 (3.58) U.03 (3.97) 5% .23 ( .59) 2.23 (2.28) (2.87) ^17% TOTAL NEW ISSUES 196U (1963) % Rise, 1 9 6 U / 1 9 6 3 : 1/ 8.11 (7.55) ~~7^ Provisional 2/ Issues of nationalized industries included under "Private Sector." Source; Conseil National du Credit, OFFICIAL USE ONLY \ OFFICIAL USE ONLY - 8 - New securities sold to the public amounted to F 8 0 1 billion during the first half of 1.96U0 However-., the increase over a year ago fell from ll; per cent in the first quarter- to 2 per cent in the second quarter, so that for the half-year new issues were only 7 per cent above a year ago. (See Table 5°) "While public sector bond issues were up 21 per cent over the first half of 19639 private assto.? bond and stock issues fell 1? per cent below a year earliero The lack of strength of the private securities market through June probably is related to w o factorss (.1; the possibility that private real investment in industry may fall 5 per cent in 196U, according to a recent INSEE survey of business ' ihve-stper.t intentions9 perhaps because of uncertainties about the effects of the stabilization plan on output levels and profitsj and (ii) the weakening of financial markets as reflected in the fall of stock prices through J;u.e 2 4 and the. higher level of long-term bond yields«. Spot franc stays at ceiling; forward 'i'rar. -s- r =r.gthe:c?i The spot, franc remain- a.m -t jvrr.LAuously at its ceiling price of 20 ohj. U.S. cents through mi Jli.lv - after weakening briefly to 20.398 cents on June 10«, Appreciable gains- in June reflected the continued strength of the franc. However-., tne supply of foreign exchange was somewhat reduced when inflows of short-term fcreigr. funds fell off after the authorities took steps in early June to ease the Paris money market. The Exchange Stabilization Fund obtained substantial amounts of foreign exchange through mid-July5 however the gains werce at a lower rate than in June* The discount- on the forward franc declined. The discount on " three-month .francs „ which had risen about -.00 basis points during May, reaching a range of l o 95-2 o 10 per cent per annum on May 27th,, fell to about 1.62 per cent on June 10th5 increased slightly at the end of the half-year, and fell to about 1.02 per- cent or- July l6th<> f See Table 6:e) The rising discount on the forward franc during May was associated with the large inflows of foreign exchange9 which were induced in part by the tightness of the Paris money market. The subsequent decline in the forward discount reflected the easing of the money market-. Payments surplus fell in firat quarter Provisional figures for the Franc-area balance of payments in the first quarter- of 19 6u show a surplus of $103 million,, less than one-half the $21? million surplus recorded in the first quarter of 1963. The main reason for the drop was a wide swing in the current account^ from a $102 million surplus in 1963 to a $93 million deficit in I96U. Most of this deterioration of nearly $200 million was caused by an adverse movement of the trade balance, but the surplus on current invisibles also decreased significantlyo (See Table ?.) The net capital inflow of $70 million was $10 million less than a year earlier, but the surplus of the overseas Francarea- countries of $66 million was up $16 million. The over-all balance benefitted from a favor-able shift of $'6 million in errors and omissions and items in transit. OFFICIAL USE ONLY OFFICIAL USE ONLY Table 6. France: - 9 - Exchange Rates and Discount on Forward Franc Spot rate (U.S. cents) Forward rate (90-day) (per cent per annum; 196k Feb. 5 Mar* 5 April 2 May 5 iu 21 June 27 It 10 17 July 21* 1 8 16 20.110 20.1108 20.1*10 20.110 1.00-1.05 1.10-1.22 20.1*10 1.68-1.83 1.95-2.10 1.95-2.05 20.lj.10 20.1:09 20.1;09 20.398 20oUlO 20.1*10 20.1*10 20.1*09 20.1*10 .U5- .50 .50- .55 1.35-1.U8 1.55-1.68 1.60-1.73 1.75-1.88 1.15-1.25 1.05-1.15 .98-1.05 Trade deficit declined in second quarter Available data suggest that the payments position improved during the second quarter, partly as a result of short-term capital inflows in May and June and partly because France's trade deficit with foreign currency areas narrowed. The seasonally-adjusted deficit ,on total trade (customs basis, imports c.i.f.) fell from $313 million in the first quarter to $230 million in the second* The improvement was caused mainly by a reduction in imports. On trade with foreign currency areas alone, the customs data suggest that the seasonally-unadjusted deficit, estimated in payments terms (imports f.o,b.), fell from $120 million in the first quarter to $95 million in the second. (The actual first-quarter trade deficit, payments basis, was $125 million.) Reserve gains were smaller in June The increase in official reserves of gold and foreign exchange (adjusted for certain official transactions) rose from $72 million in the first quarter to $298 million in the second. Following the May increase of $11*7 million, the adjusted gains dropped to $95 million in June. In part the reduced June accruals reflected $33 million of scheduled official debt and interest paymentsj in addition, short-term capital inflows ^probably fell off because the money market was less tight than in May. Adjusted gains in the first three weeks of July appear to have been around $3l* million. OFFICIAL USE ONLY - 1 OFFICIAL USE ONLY Table 7* Metropolitan France: Balance of Payments • "with Foreign Currency Areas (Millions of U.S. dollarsj Ao CURRENT ACCOUNT Goods Services B0 C. j 1963-6U I (1962-63) (—) f 1963-61* I (1962-63) ( 177 207 ) y IV i/ ( 36 94) -125 : ( 3D 76 ( 110) ( 13 58) Donations C 1963-61* I (1962-63) 127 Ul (-J9) 19 (_13) Total f 1963-61* C(1962-63) 511 (---) 153 (155) - 93 ( 1Q2) Short-term Non-monetary f 1963-61t i (1962-63) - 72 - 37 (- 19) - 27 (- 2) Long-term Private [ (1962-63) (-—) 516 139 ( HO) 110 ( 113) Long-term Public 3/ r 1963-61* 1 (1962-63) -139 - 23 (- 22) - 13 (- 32) Total f 1963-6!* I (1962-63) (—) 305 80 (_69) 70 ( JO) h -16U (-J5) 60 (-J6) 812 69 ( m ) 37 (J&) 132 50 (_26) 66 ( _5o) CAPITAL ACCOUNT f 1963-64 ERRORS, OMISSIONS, AND ITEMS IN TRANSIT f 1963-61* 1(1962-63) METRO?. FRANCE 2/ OVERALL BALANCE D, Calendar Year NET OVERSEAS FRANC AREA (—) (—) - (%%%) f 1963-61* ((1962-63) (-—) f 1963-61* [(1962-63) (—) (Continued on page 11.) OFFICIAL USE ONLY - 11 - OFFICIAL USE ONLY Table ?• Metropolitan France: Balance of Payments •with Foreign Currency Areas (Millions of U.S. dollars) (Continued) Calendar Year BALANCE OF FRANC AREA 1/ IV - 3/ f 1963-61: I (1962-63) 119 103 9B (™) ( 20U) (—-) (-30) (•M) (217) MONETARY MOVEMENTS (- is increase) COMMERCIAL BANKS f 1963-61i I (1962-63) 27 - 20 PUBLIC SECTOR Official Reserves f 1963-61; 1 (1962-63) -783 (—) -135 (- 80) (-388) Other f 1963-6U I (1962-63) -56 (-—) - 10 ( 19) ( 1(1962-63) r 1963-6U - 7 (—) ( - 51 ( — ) f 1963-6U 1 (1962-63) -8U6 (—) -1U6 (-_61) -83 (-360) r 1963-6L -290 ( ) (-118) ( -9hh (-—) -119 (-209) -103 (-216) IMF Ft. Holdings Total H. DEBT PREPAYMENTS (ADD) 1 (1962-63) NET MONETARY CHANGES BEFORE DEBT PREPAYMENTS r 1963-6L ^(1962-63) - 20 - 12 28) ) l7 Uth quarter data are residuals between yearlytotals and data for first three quarters, 2/ 1st quarter 196U data are preliminary* 3/ Before debt prepayments by French Government. See entry "H" for quarterly cfebt prepayments. Totals do not add because of rounding areas3 also, data are periodically revised. Europe and British Commonwealth Section* OFFICIAL USE ONLY INTERNATIONAL MONEY 3-MONTH EURO-DOLLAR W e d n e i d o y figures MARKET YIELDS FOR U.S. D O L L A R I N V E S T O R S ! DEPOSIT VS. CERTIFICATE OF DEPOSIT; Per c«nt YIELDS EURO-DOllAR DEPOSIT DIFFERENTIAL: EURO-DOLLAR OVER U.S. C E R T I F I C A T E OF D E P O S I T N E W YORK OFFER Friday figure* RATES O N SELECTED 3 - M O N T H TREASURY BILLS- F u l l y INVESTMENTS ' Hedged COMMERCIAL PAPER-Fully H e d g e d INTEREST ARBITRAGE, UNITED STATES / CANADA Friday figures* 3-MONTH Pj TREASURY BILL RATES UNITED STATES RATE i RATE - I DIFFERENTIAL n i DIFFERENTIAL | j AND 1 FORWARD 1 WITH i 1 FORWARD I I CANADIAN r I EXCHANGE DOLLAR I COVER I I NET INCENTIVE IN FAVOR Of CANADA J—L * T hursdoy figure* 1 961 1' r«r! oy thereafter I I I I I 1 I 1 I I I I II INTEREST A R B I T R A G E , N E W Friday figures YORK/LONDON Pj 3 - M O N T H TREASURY BILL RATES 1 i. 1 1 a z < 1 RA1rE DIF F E REN1T I A L i 1 1 1 3 - M ( D N T H FORX V A R D STER L I N G . V JOR OF LONDON r ~ - v —— ' -V ~ FORWABD BATF Discount- — ( Z-W- ! I | i, I M 1 i ,, 1 1 i i 1 1 1 1 1 1 I | RATE D I F F E R E N T I A L W I T H F O R W A R D E X C H A N G E C O V E R | IN FAVOR OF LONDON 1 1 11 1 1 1 1 1 1 1 INTEREST A R B I T R A G E FOR G E R M A N C O M M E R C I A L B A N K S 3 - M O N T H TREASURY BILLS, I N T E R B A N K EURO D O L L A R D E P O S I T RATES LENDING I lONOON RATE D I F F E R E N T I A L A N D | J F O R W A R D DEUTSCHE MARK RATE D I F F E R E N T I A L W I T H F O R W A R D NET INCENTIVE: ! RATE A N D I EXCHANGE COVER IN FAVOR OF FRANKFURT ( + ) I SHORT-TERM INTEREST RATES * ! r \ ; k I | VI I | EUR 0-D0LIAR - LONDON n i' £=*** J 0 . $. 1 I\ yv 1 1 1 1 II 1 1 J nz-^v- V V 1 1 1 1 1 II h r 1 1 1 1 GERMANY 1 1 II 1 1 1 1 1 II i i i i i i i i i I'I I l l - I l l 1 1 f v h 1 1 " " i K . W s r J ^ J K U. S. r^jf A SWITZERLAND y v v ^ f /wu> M v v 1 1 1 1 1 1 . i i i i r i i M M 1960 1111 1961 "X" 3.month treasury hill role* lor oil counlrif j except Japan land Switzerland f 3 month deposit rote) "j* 3-month rate for U S dollar deposits in London M 1962 M n i 1 II 1 II 1 1 1 II I 1 II 1963 (Average rate on honk loom and disc ou n l i V l II 1964 II H > L O N G - T E R M B O N D YIELDS r J J J J_LI J _LL JUU INDUSTRIAL STOCK INDICES 1958 = 100 Ratio n a i l -200 v/^^yvu*,. New series S wits Bank Corporation i n d u si r ia I slock index /Japan index of 2 2 5 industrial and other stocks traded on I he Tokyo exchange S P O T E X C H A N G E RATES - M A J O R CURRENCIES A G A I N S T U.S. D O H A * Abov# par T 3 - M O N T H FORWARD EXCHANGE RATE^ .F''d °Y *'9ure_l AGAINST AGAINST U.S. DOLLARS POUND STERLING - LONDON I PREIMIUM V - - SWISS FRANC A / 2 \ ^ V ' j ! ! AGAINST 1 I POUND 1 1 1 A Z ^ - - \ i 1 1 STERLING f j S JI-" -vX? :_J 1 I " 1 1 1 1 - LONDON PREMIUM + __ BELGIAN FRANC 1 1 1 1 1 I 1 1 1 1
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