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inYknnational August 7, 1961. A CAPITAL MARKET DEVELOPMENTS ABROAD I. Canada II. Nine Charts on Financial Markets Abroad I. Canada: Money and Capital Markets During July Canadian financial markets showed a steadying tendency in July following the sharp reactions in June when the Government's expansionary fiscal and monetary program was presented to the Parliament. Interest rates fluctuated narrowly around the levels to which they dropped in mid-June. Moreover, there was little change in the spread between Canadian and U.S. yields after a narrowing of up to ;;3 basis points in June. The 3-month Treasury bill fluctuated around 2.60 per cent exceeding the U.S. bill by 3f? to kQ basis points. A discount on the forward Canadian dollar reduced the difference for covered investments to 20 to 30 basis points. Industrial stock prices rose early in the month and leveled off through the remaining weeks. The Bank of Canada took easing actions during the month, thus permitting an expansion of bank loans and the flotation of a new Government bond issue without any tightening of the market. Bank of Canada security holdings rose $90 million in July while the public sold $l£5> million. The money supply seasonally adjusted rose over 1 per cent and general bank loans rose fractionally. The new Government issue of 1 and 3-1/2 year bonds was successfully placed, half with the Bank of Canada and half was sold on the market. The Canadian dollar, which has varied between 96 and 97 U.S. cents since mid-June, strengthened some in mid-July and fluctuated narrowly around 97 U.S. cents in recent weeks. Money market. Short-term interest rates showed little fluctuation in July and appear to have steadied at a level somewhat below those which prevailed earlier in the year. The average Thursday auction yield on the 3-month Treasury bill in July fluctuated narrowly around 2.60 per cent, the level to which it dropped in mid-June, and eased to 2 .££ per cent on July 27. The 6-month bill also steadied at a lower level and yielded 2.79 per cent at the end of July,just above the 2.75 per cent in mid-June. Despite the issue of a new Government bond, there was little evidence of tightening on the market. Day-*to-day loans eased somewhat, though the average closing rate rose from 2 J4O per cent at the end of June to 2.63 per cent at the end of July. While the chartered banks had borrowed NOT FOR PUBLICATION DECONTROLLED AJTER SIX MONTHS. NOT FOR PUBLICATION - 2 - $11 million from the Bank of Canada in the week ending July 5> there was no Bank borrowing in July by the chartered banks or the investment dealers® The general public made large sales of Treasury bills during the month thus reducing their bill holdings by $95 million« The Bank of Canada purchased $69 million and the chartered banks took $16 million. Another $11 million was taken by the Government accounts= The decline in Canadian bill yields was little different from changes in the yield on the UoS„ bill$ with the result that the spread favoring the Canadian bill varied little9 between 30 and UO basis points0 On July 27 this spread was 0,35 per cent per annum compared with 0.30 per cent at the end of June» Some variation in the forward discount3 however, moved the incentive slightly against the Canadian bill on July 6S but through the remainder of the month the Canadian bill showed an advantage of 20 to 30 basis points on a covered basis (see Chart and Tables)„ On August 3# the net incentive was reduced to 0»0U per cent per annum due largely to a rise in the U 0 S o bill yields Bond marketo Bond yields showed little change in July after declining sharply in June0 Short- and intermediate~term maturities eased a bit while longer maturities showed a very slight tendency to rise, as noted in the following table s Maturity June 1 Oct. 1962 Sept. 1965 Jan. 1975-78 Sept. 1983 3°27 U.78 5=19 5=20 June 15 2.78 1.63 5olU 5ol0 June 29 2.10 iu53 U*99 ko96 July 27 2.0k tioUl 5=00 Uo99 The McLeod> Young ^ Weir UO bond yield average for maturities from 8 months to lit. yearss shows a very slight decline from June 30 to August 1 as noted in the following tables June 30 10 10 10 10 Provincials Municipals Public utilities Industrials hO Bond yield average 5.37 5-71 5:37 5-U7 5,L8 1 5.39 5.62 5,35 MS 5-U5 The yield spread favoring Canadian over U,S = Government securities also changed little during July a?'narrowing sharply in June< Changes ~in the spread between comparable Canadian and U.S. securities in July were: NOT FOR PUBLICATION NOT FOR PUBLICATION Change Mar, 31 to June 29 91-day bill 182-day bill 8-year bond 20-year bond 35-year bond - 0»U7 0®U3 0,1*3 0 »U8 0.29 June 29 0,30 0,28 0,53 0.-88 lolli - 3 Change June to July 27 July 27 0.35 0.33 0.U8 1,01 1.23 ^ + + + + 0o05 0,05 o»o5 0.13 0,09 During the month the general public sold $37 million of Government bonds of which $21 million were purchased by the Bank of Canada and $11 million by the chartered banks= On July 17, the Minister of Finance announced a new $ 3>C million short-term bond issue as part of the Government's program to refinance December 1, 1961 maturities<> The new offering was successfully placed with no apparent tightening of the market. It consisted of two maturities as follows: , (a) One-year, 3 per cent, noncallable bonds due August 1, 1962, priced at 99,70 per cent to yield 3*31 per cent to maturity; (b) 3 yrs, and U m o s , U per cent, noncallable bonds due December 1, 196k, priced at 99 per cent to yield U»32 . per cent to maturity. The Bank of Canada agreed to acquire $75 million of the 3 per cent bonds and $100 million of the I4. per cent bonds in exchange for an equal par value of the 3 per cent bonds maturing December 1, 1961c The remaining $175 million was offered for cash and taken as follows: (a) $35 million, 3 per cent bonds, due August 19625 (b) $130 million, k per cent bonds, due December 196Lw The proceeds of the cash offering will also be used to retire December 1961 maturities. Together they will reduce the December maturities outstanding to $5U6 million compared with $1,021 million of that maturity outstanding at the beginning of the year. Outstanding bonds which must be refinanced in the current fiscal year, ending next March 30, amounted to $600,5 million as follows: $5U6»0 million - December 1, 1961 5U.5 million - February 1, 1962 $600.5 million In addition to these refinancing needs, the anticipated budget deficit is expected to bring new cash requirements to about $1 billion in the current fiscal year ending next March 30 c NOT FOR PUBLICATION NOT FOR PUBLICATION According to A.E. Ames & Company, $320 million of were issued in the first three weeks of July, not including Canadian Government bond issue (see Table) 0 New Provincial amounted to $50 million, municipals amounted to $7 million, $23 million. - L new securities the new offerings and corporates Some of the larger new non-Government security issues in July include the following: Union Gas Co, of Canada, $lU million, 5 - 3 A per cent debentures due July 15, 1981; Home Oil Co., and United Oils, Ltd., $20 million, 6-1/8 per cent, secured bonds, placed in New York; Alberta Government Telephones, $15 million debentures, U-3/U per cent due August 1966, at 9 9 - l A to yield iu92 per cent and 5 - 1 / 2 per cent August 1981, at 98-1/2 yielding 5=37 per cent; Province of Quebec, $50 million of debentures, as follows: U - 3 A per cent due August 1967, at 9 9 - 1A , to yield U»90 per cent, and 5-l/U per cent due August 1985, at 98, to yield 5»U0 per cent; British Columbia, $50 million of 5 per cent bonds, the largest bond sale ever made by the B.C. Government; British Columbia Telephone Company, $20 million of first mortgage bonds, 5 - 3 A per cent, at par, due July 15, 1986. During the January-May period there was a net sale of securities abroad of $95. L million compared with sales of $80„5 million in the first half of I960 and net purchases of $33*8 million in the July-December period of I960. The major part of the sales abroad in 1961, 5U per cent, was attributable to Canadian Government securities, of which 66 per cent was taken by the United States, July and Canadian when the Standard Stock market. Industrial stock prices rose in late June and early then leveled off through the remaining weeks of July. On July 27 prices were more than 36 per cent above their level on October 6 rise began, compared with a rise of 2h per cent in the New York and Poor index during the • r r-t od. NOT FOR PUBLICATION *= 5 - NOT FOR PUBLICATION DBS Oct. 6 Dec. 29 May 25 June 15 22 July 6 13 20 27 2U6.1 275.9 332.2 329.7 333.8 3U0.U 333.6 331.U 33U.8 New York Standard & Poor 56o63 61.27 70.23 69.62 68.71 69,58 68 . a 68.35 70.10 The volume of stock traded on the Canadian exchanges in July was somewhat below the last few months. The weekly average for July was $7el million compared with $10.9 million in June and $18.3 million in May. General bank loans and money supply. The moAey supply seasonally adjusted rose $>153 million in the first 3 weeks of July, a rise of over 1 per cent, to bring total currency and private deposits over U per cent above the end of I960 and over 7*5 per cent above mid-1960. General bank loans seasonally adjusted also rose fractionally to new highs. After the first 3 weeks of July total outstanding loans were almost 3 per cent above year-end levels and almost 6.5 per cent above the 1959 peak. Foreign exchange. The spot rate on the Canadian dollar strengthened some in mid-July and fluctuated narrowly around 97 U.S. cents during the latter part of the month. At the end of July and through August 3, the rate remained close to 97 U.S. cents compared with 96.1&2 U.S. cents at d o s e of business on July 3« The Canadian dollar fell to a discount in mid-June following the announcement of the Government's intentions to lower the rate through the direct intervention of the Exchange Fund. Foreign exchange reserves rose $36 million in June as a result of these operations. While July figures are not yet available, there are indications that downward pressure on the rate is being sustained by some repatriation of capital by foreign residents. The discount on the 3-month forward Canadian dollar rose sharply to about 0.5 per cent per annum in early July and then declined to about 0.1 per cent for the remainder of the month. Mortgage market. Since the establishment of a secondary mortgage market last June (see Capital Market Developments Abroad, No. 11, June 12, 1961) there have been reports of an increasing availability of mortgage funds and some reductions in mortgage rates. While NHA mortgage rates have been at 6-3/L per cent for some time, conventional loans were quoted as high as 7-1/2 per cent last year but more recently at 7 per cent, with some offerings at 6 - 3 A per cent for mortgages on prime property. NOT FOR PUBLICATION NOT FOR PUBLICATION - 6 - NHA insured mortgage loans in the first five months of 1961 totaled $287.5 million, more than three times the same period in I960, Conventional loans in the January-March period^ on the other hand, fell below the first quarter I960 level« Housing starts seasonally adjusted during the first five months of 1961 were running 2k per cent above a year ago, but there was a sharp fall-off in April-May» In July, a private organization, the General Mortgage Service Corporation of Canada, was established, which will further encourage the flow of funds into mortgage loans, the primary aim of the Government in establishing the secondary mortgage market» .The new company will specialize in buying, selling, managing, and servicing of mortgages» To finance the operation two classes of mortgage backed bonds will be offered to the public. A series A bond will be secured and fully backed by NHA mortgages, and a series B will be backed by conventional mortgages and some incomeproducing real estate <, British Commonwealth Section* II. Nine Charts on Financial Markets Abroad Chart Chart Chart Chart Chart Chart Chart Chart Interest Arbitrage UoS„/Canada Interest Arbitrage New York/London Interest Arbitrage New York/Frankfurt Interest Arbitrage Frankfurt/London Short-term bond Yields Long-term Bond Yields Industrial Stock Indices Major Currencies in Terms of Spot United States Dollar Chart 9 - 3-month Forward Rate—London Quotations 1 2 3 U £ 6 7 8 - NOT FOR PUBLICATION Selected. Canadian Money Market and Related Data 3-ao. Treas. billa Canada Spread */ q.sjy over U.S. i960 = High Low 1961 - High Low 5.1h 1.68 3.3k 2.$2 1.53 2.10 =•0.82 2,17 1.10 0.23 105.27 100.33 101.72 9608I June 29 July 6 13 20 27 Augo 3 2.57 2.63 2.62 2.63 2.27 2 = 31 2.2k 2.19 2.20 2.29 0.30 0.32 0.38 Ooiiii 0.35 0.23 96.80 96.38 96.81 96.86 97.02 96.98 2.55 2.52 f 1o62 : CO • «•» 1.99 0.99 -0.91' 0.26 -0.57 0.89 -0.20 -0.56 96.75 96.25 96.77 96.83 96.98 96.9k -0.19 -0.52 -0.13 -0.13 -0ol3 -0.19 0.11 • —0 0 20 0.25 0.31 0.23 o.ob . Selected Government of Canada Security Yields 6-mo. Treas . bills Spread Canada a Intermediate bonds (8 yr.) Spread Cagjda 5.33 1.99 3.63 2*70 1.37' —0 0 86 1.15 0.19 5.55 U.09 It. 75 1.11 0.21 1.16 ' 0.1*8 June 29 July 6 13 20 27 2.71 2.77 2.77 2.81 2.79 0.28 0.27 0.30 0.U0 0.33 U.ll9 IUS lt.1V? U.U2 U.U9 00000 1960 - High Low 1961 - High Low k&sfrb ! I 2.5L Net Incentlve to hold Can. bill*/ a/ Average yield at weekly tender onThursday. b/ Conposite market yield for the U.S. Treasury bill on Thursday close of business. 0/ In U.S. cents, d/ Spread a/ Spi between spot rate and 3-month forward Canadian dollar on Thursday closing, expressed as per cent per annum. e/ Spread over U.S. Treasury bill (column 3), plus 3-month forward discount or premium (column 6). I• I Canadian dollar Scat 3-mo* discount ( - 1 zf forward premiumC+ffl Long-term bonds (35 year; (20 year; Spread Spread Ctn^d* Cagyia a / 5-1*2 U.63 5.19 1.85 1.36 • 0.85 loUo 0.88 U.86 , 0.88 0.93 k.85 U087 - 0.9U U.87 0.97 1.01 it. 90 '5.28 a. 68 5.23 >.92 U.9lt k.93 lt.93 U.92 U.92 Average yield at weekly tender on Thursday. ' Spread between Canadian auction rat# and composite market yield of U.S. bill on close of business Thursday. 0/ Government of Canada 2 - 3 A per cent of June 1967-68. y Spread over U.S. Government 2-1/2 per cent of 1963-68* e/ Government of Canada 3 - l A P61* °ent of October 1979 • tj Spread over U.S. Government 3 - l A p w cent of 1978-83, -' Government of Canada 3 - 3 A psr cent of September 1996 - March 1998. Spread over U.S. Government of 1995* f. 1.61 0.95 1.59 1.Hi 1.1k 1.23 1.18 1.2U 1.2> - 8 - Canada: Changes In Distribution of Holdings of Canadian Government Direct and Guaranteed Securities (millions of Canadian dollars, par value) Bank of Canada Treas. bills Bonds 1960-Ccto Novo Dec* +66 - 8 + 9 + 6 + 1 - 8 1961=Jan0 Febo ~ Mar® April May June July =1*1 - 7 =38 =68 +120 +29 =22 +U3 +21 Sources ~h7 * 9 +17 =7i± +69 Government Total +37 +15 -87 . +15 =96 -25 = 2 - 1 • 5' +16 Chartered banks Treas. bills Bonds - U - 17 General public Savings Treas. bonds Bonds bills +126 + ?? jJU - 5 +630 + + - - 2 - 6 - 18 - 37 ° 33 * 22 -23 - 4rlH + 67 - 36 - 70 + 63 + 33 +.16 37 88 50 52 + 2k + 62 + 11 3 2 0 +55 +12 - +72 -U6 -78 °1|6 -26 +30 +6U =80 - 7 -95 +23 +39 + 6 -12 + 1 +37 -37 Bank of Canada, Weekly Financial Statistics* Selected Canadian Financial Statistics ladian dollars or per cent) Mar<> . April May IT Money supply s V Currency and deposits Lesss Govt-o deposits Equalss privately held Change in period 13,939 287 % 3 ^ 4- 10U 13,876 253 %3^3 29 13,866 153 13,tl3 + 90 13,861 200 13^51 52 £/llt,00U 190 2o General bank loansf/ Change in period 5,209 <v 5 5,207 2 5,221 + 17 5,252 t 28 2/5,260 + 12 3o T6tal Govto securitiess Of whichg Treas0 bills Bonds Savings bonds 17,808 1,935 12,309 3,56k 17,780 1,935 12,308 3,537 17,695 1,935 12,258 3,502 17,763 1,885 12,kOL 3,U7U 17,739 1,885 12,1*02 3A52 913 6 926 0 891 -725 11 £/320 0 Uo New security issuesjV Of -which sold in U 0 S 6 95 June + 153 Chartered bank liquiditys Cash reserve 1,009 1,018 1,017 1,027 1,025 Cash ratio 8.1 8,1 8.1 8.1 8.1 Liquid assets 2,263 2,170 2,226 2*212 2 i $ Liquid asset ratio 18 o2 18.3 17.3 17.7 1 7 Seasonajjylidjustedo lb/ Sources Ao Eo Ames & Co op Ltd* (Includes public and private securities0) c/ Through July 19» 5o INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A Thursday figures T H R E E - M O N T H TREASURY BILL RATES CANADA , - v n v UNITED STATES RATE DIFFERENTIAL A N D F O R W A R D C A N A D I A N DOLLAR RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER J 1 . • L_. ~ T NIT INCENTIVE IN EAVOR OF CANADA + J S 1959 tt D I960 M J 1911 S INTEREST A R B I T R A G E , N E W Y O R K / J ridgy lip u m 3 - M O N T H TREASURY BILL RATES RATE D I F F E R E N T I A L A N D 3 - M O N T H FORWARD STERLING 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 COVER LONDON INTEREST A R B I T R A G E , NEW Y O R K / F R A N K F U R T Friday I i gu ret 3 - M O N T H TREASURY BILL RATES A N D GERMAN 3-MONTH INTERBANK INTERBANK LOAN RATE P*r cinl pir annum L O A N RATES !/~V RATE D I F F E R E N T I A L A N D F O R W A R D D E U T S C H E M A R K \ IOAN RATE V* 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 FRANKFURT ( + ) \/ IN FAVOR OF NEW YORK (-) k I960 Mole: l»6i Special forward dollar rate ^either flat or premium on spot) available to German commercial banks. INTEREST A R B I T R A G E , F R A N K F U R T / L O N D O N Friday tigun 3 - M O N T H TREASURY BILLS — AND LENDING R A T E S - RATE D I F F E R E N T I A L A N D F O R W A R D S T E R L I N G SPREAD IN FAVOR OF UNITED KINGDOM BIUS OVER: GERMAN \ INTERBANK \ LOAN RATE 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 COVER - NET INCENTIVE OF UNITED KINGDOM BILLS OVER: v_ GERMAN. INTERBANK l^NT, S H O R T - T E R M INTEREST JtATES * 1 \, \ rv I V \ r I \ u . s. r * 1 1 1 rrr~i\ v/ | M r v v ' l \ » GERMANY Vvv. SWITZERLAND* o 19 5 8 Note: _ 1959 _ 1960 3-month Ireotury bill role* for oil countries except Japan (3-month interbank deposit rate) and Switzerland (,3-monlh deposit rate). 1961 L O N G - T E R M B O N D YIELDS 6ERMANY 8 1959 I N D U S T R I A L STOCK I N D I C E S J? 5 8 Note: Japan: li of oil ilocki Iroded on Tokyo exchange M A J O R CURRENCIES I N TERMS OF THE SPOT U. S. DOLLAR y\ PER CENT Above p<v 3 - M O N T H FORWARD RATES - L O N D O N QUOTATIONS / PREMIUM 4- /'GERMAN MARK PREMIUM +
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