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DIVISION O F I N T E R N A T I O N A L F I N A N C E
BOARD OF GOVERNOR*
n
3
So! 96
F E D E R A L R E S E R V E SYSTEM
February 22, 1963
!
FEB 3 7 1963
\ icCAPITAL MARKET DEVELOPMENTS ABROAD
S-
rESI:%VK BAIIi
I,
I,
LI,
Switzerland
Nine Charts on F i n a n c i a l Markets Abroad
Switzerland:
Money and C a p i t a l Markets, November 1962--Jahuary 1963
To meet heavy s e a s o n a l needs f o r currency and t o window-dress
year-end balance s h e e t s , Swiss banks r e p a t r i a t e d f u n d s from abroad i n t h e
c l o s i n g weeks of 1962 and concluded d o l l a r - f r a n c swaps over t h e year-end
( r e p o r t e d a t $255 m i l l i o n ) with t h e Swiss National Bank and t h e Bank f o r
I n t e r n a t i o n a l S e t t l e m e n t s , As a r e s u l t of c o o p e r a t i v e arrangements between
t h e s e l a t t e r two i n s t i t u t i o n s , t h e year-end swaps were f u l l y r e f l e c t e d i n
t h e $260 m i l l i o n r i s e i n t h e Swiss N a t i o n a l Bank's h o l d i n g s of gold and f o r e i g n
exchange i n December, As l i q u i d i t y needs c o n t r a c t e d i n January t h e s e swaps
were unwound, but Swiss N a t i o n a l Bank r e s e r v e s f e l l only $217 m i l l i o n i n
January, about $38 m i l l i o n l e s s than t h e r e p o r t e d t o t a l of swaps.
Seasonal needs and s t r o n g e r demand f o r Swiss f r a n c s by I t a l i a n banks
pushed up s h o r t - t e r m money r a t e s i n November~Decembe r , But e a r l y i n 1963
money r a t e s f e l l approximately t o t h e i r October l e v e l s . Y i e l d s on mediumand long-term f u n d s showed l i t t l e change i n t h e p e r i o d under review.
In November Swiss stock p r i c e s rebounded smartly and recovered almost
a l l of t h e d e c l i n e s u f f e r e d i n t h e p r e c e d i n g two months, Swiss i n d u s t r i a l
s t o c k s a r e c u r r e n t l y p r i c e d a t about 32 p e r c e n t below t h e i r a l l - t i m e high of
l a s t March, b u t Swiss s t o c k s showed a y i e l d of only 1 , 5 6 p e r cent a t t h e end
of November,
During 1962, new p u b l i c i s s u e s of s e c u r i t i e s i n Switzerland
were 3 , 6 p e r c e n t g r e a t e r than i n 1961, While Swiss i s s u e s were up 20 p e r
c e n t , t h e Swiss a u t h o r i t i e s allowed a much-reduced volume of f o r e i g n bond
i s s u e s t o come t o market i n o r d e r t o ease p r e s s u r e s on long-term i n t e r e s t r a t e s .
The SF 655 m i l l i o n of f o r e i g n borrowings were d i s t r i b u t e d as f o l l o w s ( i n
m i l l i o n s of Swiss f r a n c s ) : World Bank, 100j B r i t i s h f i i m s , 170$ German f i r m s ,
1305 t h e European Coal and S t e e l Community, 605 Dermatic, 605 s U,S, f i r m , 6O5
and French, A u s t r i a n , and I t a l i a n f i r m s 1*0, 25, and 10, r e s p e c t i v e l y .
Concern over t h e "overheating" of t h e Swiss economy, and p a r t i c u l a r l y
t h e moderate but continuing upward movement of p r i c e s , l e d t h e a u t h o r i t i e s on
December 31 t o r e p l a c e t h e "gentlemen's agreement" of l a s t A p r i l 1 between t h e
Swiss N a t i o n a l Bank and Swiss commercial banks, t o l i m i t t h e expansion of bank
c r e d i t d u r i n g 1962, w i t h a new one covering 1963, The new agreement i s
s l i g h t l y moref r e s t r i c t i v e than i t s p r e d e c e s s o r ; but i t too can s c a r c e l y be
OFFICIAL USE ONLY
DECONTROLLED AFTER SIX MONTHS
OFFICIAL USE ONLY
-
2 -
c a l l e d s e v e r e . Under i t s terms, mortgage c r e d i t s cannot r i s e more than 108 p e r
c e n t , and o t h e r types of bank c r e d i t more t h a n 87 p e r c e n t , of t h e i n c r e a s e
which occurred i n I960 or 1961, whichever was g r e a t e r . These p r o v i s i o n s appear
t o allow i n c r e a s e s i n 1963 (over end-1962 l e v e l s of c r e d i t o u t s t a n d i n g ) of
approximately 8 p e r c e n t f o r mortgages and 15 p e r c e n t f o r o t h e r c r e d i t s .
According t o The Economist of January 5 , 1963, t h e Swiss N a t i o n a l Bank wished t o
make t h e new terms more r e s t r i c t i v e , b u t t h e banks were u n w i l l i n g t o do so as
long a s o t h e r s e c t o r s of the economy, such as t h e l a b o r u n i o n s , do n o t c o l l a b o r a t e
more c l o s e l y with t h e a u t h o r i t i e s i n r e s t r a i n i n g i n f l a t i o n .
Since mid-December, r e p r e s e n t a t i v e s of t h e Swiss F e d e r a l Council have
been holding c o n s u l t a t i o n s with employers a s s o c i a t i o n s , l a b o r , and a g r i c u l t u r e
concerning "excessive expansion" and i n f l a t i o n . The Economics M i n i s t e r h a s ,
i n t e r a l i a , asked e n t r e p r e n e u r s t o l i m i t manpower demands t o e x i s t i n g l e v e l s ,
and has annealed t o the unions t o renounce demands f o r c u t s i n working h o u r s .
However, t h e annual l a b o r c o n t r a c t s signed on January 23, 1963 covering t h e
e n g i n e e r i n g , m e t a l , and watchmaking i n d u s t r i e s (which" employ 20 p e r c e n t of
organized l a b o r and " s e t t h e p a c e " on wage t r e n d s ) provided f o r a r e d u c t i o n
i n the work week from
t o kh hours e f f e c t i v e May 1, as w e l l as f o r wage
increasesa
Money market. The year=end l i q u i d i t y requirements of the Swiss
banking system gave r i s e i n November and December t o what t h e Swiss N a t i o n a l
Bank termed "a massive c r e a t i o n of f r a n c s " . P a r t of the banks 1 need f o r funds
was t o meet t h e currency d r a i n , the n o t e c i r c u l a t i o n r i s i n g by SF 1,060 m i l l i o n
Swiss f r a n c s or l k p e r c e n t between November 15 and December 22, The r i s e was
n e a r l y SF 200 m i l l i o n l a r g e r than i n t h e same p e r i o d of 1961, I n a d d i t i o n , t h e
Swiss banks engaged i n t h e customary p r a c t i c e of " d r e s s i n g up" t h e i r y e a r - e n d
balance s h e e t s t o show l a r g e holdings of l i q u i d f r a n c s , To t h i s end, s i g h t balances
w i t h t h e Swiss N a t i o n a l Bank were i n c r e a s e d SF 300 m i l l i o n o r 28 p e r c e n t between
December 15 and December 31 t o a year-end l e v e l of SF 2,29h m i l l i o n .
In a d d i t i o n t o t h e s e s e a s o n a l f a c t o r s , I t a l i a n banks borrowed more
h e a v i l y on the Swiss money market i n November-December, E f f e c t i v e November 1 ,
I t a l i a n banks were allowed t o borrow f o r e i g n exchange a>road t o make f o r e i g n currency l o a n s t o I t a l i a n customers. This change i n r e g u l a t i o n s caused a l a r g e
i n c r e a s e i n t h e I t a l i a n banks' demand f o r f o r e i g n f u n d s , i n c l u d i n g Swiss f r a n c s .
P r e p a r a t i o n s f o r t h e year-end began i n e a r l y November, To s a t i s f y
t h e bulk of t h e s e f r a n c requirements, t h e l a r g e banks i n Switzerland - - and a
v e r y few c a n t o n a l banks which held f o r e i g n exchange ~ r e p a t r i a t e d f o r e i g n
balances on a heavy s c a l e . Some of t h i s exchange was sold on t h e market, b u t
l a r g e amounts ( a p p a r e n t l y a high p r o p o r t i o n ) were swapped f o r f r a n c s ^with t h e
Swiss N a t i o n a l Bank and the Bank f o r . I n t e r n a t i o n a l S e t t l e m e n t s f o r p e r i o d s
extending over the y e a r - e n d , According t o t h e Neue Zuercher Zeitung f o r
January 12, 1963, t h e s e swaps aggregated SF 1,100 m i l l i o n ($255 m i l l i o n } j and
were g e n e r a l l y f o r l o n g e r than the u s u a l p e r i o d s . These swaps a r e described
i n more d e t a i l on page 7*
OFFICIAL USE ONLY
OFFICIAL USE ONLY
In a d d i t i o n , Swiss banks ( i n c l u d i n g small banks) i n c r e a s e d t h e i r
r e d i s c o u n t s and advances from t h e Swiss N a t i o n a l Bank by SF 120 m i l l i o n i n
November and December, of which SF 81i m i ] l i o n occurred i n t h e f i n a l week of
December, The s a l e of $30 m i l l i o n t o t h e U.S. Treasury i n December was a
t h i r d source of a d d i t i o n a l f r a n c s f o r some banks, These d o l l a r s had been
purchased by c e r t a i n Swiss banks i n l a t e October, and sold forward t o t h e U.S.
Treasury a t t h a t t i m e .
Short-term money r a t e s rose over t h e year-end p e r i o d . The c a l l loan
r a t e , which had remained a t l - l / l i p e r c e n t f o r 10 months, d r i f t e d up t o 1 - 1 / 2
p e r c e n t i n e a r l y November and t o between 1 - 3 A and 2 p e r c e n t i n t h e l a s t
t h r e e weeks of December, Three-month d e p o s i t r a t e s r o s e from 2-3 A p e r c e n t .
a t t h e end of October t o between 2=7/8 and 3 p e r cent i n t h e t h i r d week of
November, and stood a t 2-7/8 p e r c e n t d u r i n g December, (See Table 7 and Chart 5 . )
With t h e t u r n of t h e y e a r , t h e money market eased. The n o t e c i r c u l a t i o n d e c l i n e d n e a r l y SF 800 m i l l i o n i n t h e f i r s t two weeks of J a n u a r y , and the
banks' b a l a n c e s w i t h t h e c e n t r a l bank decreased SF ll*l m i l l i o n i n January,
Funds were again placed abroad i n volume, and a l l t h e swaps with t h e SNB and
t h e BIS were r e p o r t e d t o have been reversed by t h e end of January. By January 15>
r e d i s c o u n t s and advances frorn t>e Swiss National Rank returned t o normal 1 pv#»1 q.
The 3-month d e p o s i t r a t e d e c l i n e d from 2-7/8 p e r c e n t i n December
t o 2-5/0 p e r c e n t i n January, and t h e c a l l l o a n r a t e dropped t o 1 - 1 / 2 p e r c e n t .
Bond market. The t i g h t e n i n g of c r e d i t a v a i l a b i l i t i e s i n t h e money
market i n November-December did/ n o t extend t o the markets f o r medium- and l o n g term f u n d s . R a t h e r , i n t h e long-term government bond s e c t o r , t h e r e was a moderate
e a s i n g i n mid-November, when ithe y i e l d t o m a t u r i t y on t h e Swiss Confederation
3 p e r c e n t bond of 1967-7lt d e c l i n e d from 3 , 1 1 p e r c e n t on November 9 t o 3.09
p e r c e n t on November 16, (See Table 8 and Chart 6 , ) C o n t r i b u t i n g t o t h i s
e a s i n b was t h e very small amount of n e t new money r a i s e d by new i s s u e s i n
November-December, The subsequent s l i g h t t i g h t e n i n g i n mid-December did no
more than b r i n g t h e y i e l d back up t o 3 , 1 1 p e r c e n t . This y i e l d remained unchanged
u n t i l l a t e January, when a d e c l i n e i n demand f o r bonds pushed i t t o 3,13 p e r c e n t
on January 25 and February 1.
Yields on new medium-term d e p o s i t c e r t i f i c a t e s were unchanged i n t h e
p e r i o d under review.
Stock market. The week of t h e Cuban c r i s i s saw t h e culmination of a
severe d e c l i n e i n Swiss stock p r i c e s which took p l a c e i n September-October,
Reports of somewhat l e s s buoyant demand i n some s e c t o r s of t h e Swiss economy
i n t h e t h i r d q u a r t e r , and weakness on Wall S t r e e t , c o n t r i b u t e d t o t h e s e d e c l i n e s .
However, the Swiss market joined o t h e r markets i n t h e rebound which occurred a t
the end of October, with t h e e a s i n g of i n t e r n a t i o n a l t e n s i o n s . (See Table 1 and
Chart 7 . ) A f t e r a 5-week r i s e , the Swiss i n d u s t r i a l s index was 21 p e r c e n t h i g h e r
on November 30 than on October 26, r e c o v e r i n g a l l t h e l o s s s i n c e mid-September,
OFFICIAL USE ONLY
OFFICIAL USE ONLY
A f t e r mid-December, p r i c e changes were g e n e r a l l y v e r y s m a l l . Ihe
absence of any ma iked tendency, up or down, i n t h e s e s i x weeks was i n s t r o n g
c o n t r a s t t o t h e r e c e n t wide f l u c t u a t i o n s .
Table 1 .
S w i t z e r l a n d : I n d u s t r i a l Share Index, 1962-63
(195b a 100)
1962
1963
March 9June If)
August 31
October 26 (low)
November 2
16
30
December Ifi
28
292.5
175,6
209.5
169, fi
179.6
190.fi
205,7
196,8
196.fi
January fi
11
18
25
February 1
8
202,9
197.9
198.1
196.fi
196.9
196.1
Because of t h e s e v e r i t y of t h e d e c l i n e i n p r i c e s l a s t s p r i n g , Swiss
i n d u s t r i a l s t o c k s a r e c u r r e n t l y s e l l i n g , on t h e average, about 32 p e r c e n t below
t h e a l l - t i m e high i n March 1962, And y e t Swiss s t o c k s remain v e i y h i g h - p r i c e d
as measured by t h e i r y i e l d s . According t o c a l c u l a t i o n s made by t h e Union Bank
of Switzerland, t h e average y i e l d on major Swiss s t o c k s was 1 . 5 6 p e r c e n t a t t h e
end of November 1962. Ch o t h e r major m a r k e t s , such a y i e l d i s approached only
by t h a t on French s t o c k s , which stood a t 1 , 6 3 p e r c e n t a t t h e end of l a s t
November, Even a t t h e end of October 1962, when end-of-month p r i c e s were a t
1962 lows, t h e average y i e l d was s t i l l only 1.79 p e r c e n t , (See Table 2 , )
Table 2. S w i t z e r l a n d : Stock Y i e l d s , 1962 a /
(In p e r c e n t ; end of month)
Group
Feb.
June
Au^
Sept.
Oct.
Nov.
Banks
Insurance
Electricity
Chemicals
Metals and
Machines
Foods
1,10
l.fi8
1,70
0.65
1.1*9
1.87
2,00
0.99
i,fio
1,80
1.99
0.93
1,52
1,98
2,01
1,05
1,60
2,11
2.17
1,12
1,39
1.87
1.97
0,96
l.fi6
0.88
2.02
1,15
I.83
1.09
1,99
'•1.19
2.15
1.26
1,89
1.10
Combined average
1,-23 - 1.6fi
i.5fi
1,67
1.79
1,56
a / Based on g r o s s y i e l d s of major s t o c k s .
Switzerland,
Calculated by t h e Union Bank of
OFFICIAL USE ONLY
OFFICIAL USE ONLY
~ 5 ~
New i s s u e s . In t e r n s of n e t new money r a i s e d , p u b l i c i s s u e s of
s e c u r i t i e s f e l l o f f s h a r p l y i n November and December, Net volume amounted t o
$ll m i l l i o n i n November and $12 m i l l i o n i n December. (See Table 8 , ) In November,
g r o s s new money r a i s e d was s u b s t a n t i a l o r average f o r a l l c a t e g o r i e s , and t o t a l l e d
$53 m i l l i o n . But reimbursements came t o $lt9 m i l l i o n , of which $lt8 m i l l i o n c o n s t i t u t e d redemption of bonds of t h e Federal Treasury. The low l e v e l of . a c t i v i t y i n
December was l a r g e l y a s e a s o n a l development, but the amounts r a i s e d , both gross
and n e t of reimbursements, f e l l s h o r t of the new money r a i s e d i n December of
I960 and 1961.
Foreign bond i s s u e s continued a t t h e now-customary r a t e of one p e r month.
In November, t h e European Coal and S t e e l Community r a i s e d $llt m i l l i o n on t h e Swiss
market a t a c o s t of it-1/2 p e r c e n t , (See Table 3 , ) At t h e same t i m e , t h e ECSC
f l o a t e d l o a n s i n Belgium and t h e Netherlands f o r a t o t a l of $11 m i l l i o n . The
December borrowing was by t h e Graz ( A u s t r i a ) power company S t e i r i s e h e W a s s e r k r a f t und E l e k t r i z i t a e t s - A , G, i n t h e amount of about $6 m i l l i o n and a t a c o s t of 5 p e r
v e n t . At t h e end of January, a $5 m i l l i o n l o a r was f l o a t e d i n Switzerland by
Cadbury B r o t h e r s , a s u b s i d i a r y of B r i t i s h Chocolate Company Ltd, A l l t h r e e l o a n s
were o v e r s u b s c r i b e d .
Table 3.
Switzerland:
Foreign Bond I s s u e s , November 1962 — January 1963
Amount
($ m i l , )
Term
llt.O
1968-80
It.5
100
It.5
December 1962
Steirisehe Wasserkraftund E l e k t r i z i t a e t s - A « G.
(Graz, A u s t r i a )
5,8
1968-77
5.0
100
5,0
January 1963
Cadbury Brothers (U.K. ) It.7
1978
it,5
100
li.5
November 1962
European Coal and
S t e e l Community
Coupon
rate
Issue
price
Yield t o
maturity
For 1962 as a whole, gross new money r a i s e d t o t a l l e d $568 m i l l i o n , a
r i s e of only 3,6 p e r cent over t h e p r e c e d i n g y e a r , (See Table It,) Because of a
much h e a v i e r volume of reimbursements ( h a l f of which occurred i n November), n e t
new money r a i ^ a d declined 10 p e r c e n t ($51 m i l l i o n ) i n 1962, I t may be t h a t t h e
November-December new i s s u e a u t h o r i z a t i o n s did n o t take i n t o account t h e a v a i l a b i l i t y of l i q u i d funds f r e e d by t h e November redemptions,
Although t o t a l gross new money r o s e o n l y 3 , 6 p e r c e n t , f o r Swiss
s e c u r i t i e s t h e r i s e was 28 p e r c e n t . This was the second s u c c e s s i v e l a r g e i n c r e a s e ,
f o l l o w i n g a 29 p e r c e n t r i s e i n 1961,
In c o n t r a s t , f o r e i g n bond i s s u e s , a t
$152 m i l l i o n i n 1962, were down $71 m i l l i o n from 1961, because t h e Swiss a u t h o r i t i e s
t i g h t e n e d up on t h i s borrowing.
OFFICIAL USE ONLY
OFFICIAL USE CNLY
The r e s t r i c t i o n of f o r e i g n access to the Swiss c a p i t a l market apparently
r e f l e c t s f e a r s on t h e p a r t of the Swiss a u t h o r i t i e s t h a t , had f o r e i g n borrowing
n o t been reduced by d i r e c t a c t i o n , long-term i n t e r e s t r a t e s would have been h i g h e r .
The l e v e l of bond y i e l d s a f f e c t s mortgage r a t e s , and the l a t t e r are a h i g h l y
s e n s i t i v e p o l i t i c a l i s s u e i n the Swiss Confederation,
Table h* Switzerland? New Public I s s u e s , 1959-62
(In m i l l i o n s of d o l l a r s e q u i v a l e n t )
1959
I960
1961
1962
Swiss i s s u e s
- Bonds
Stocks
i S
9k
252
#7
li5
Hi
87
l51t
Foreign bonds
112
130
223
152
320
5U8
37
511
568
108
1*60
Gross new money
Total s gross new money
Reimbursements
Total, n e t new money
365
38
327
Foreign t r a d e . In r e c e n t months, S w i t z e r l a n d ! s f o r e i g n t r a d e has
ceased t o expand. Exports i n the f o u r t h q u a r t e r of 1962, s e a s o n a l l y a d j u s t e d ,
were a t the same l e v e l as i n t h e second and t h i r d q u a r t e r s , (See Table 5 . )
Adjusted imports i n t h e f o u r t h q u a r t e r were down 2 p e r cent from t h e t h i r d
q u a r t e r , and have tended t o d e c l i n e moderately since l a s t J u l y , As a r e s u l t ,
the t r a d e d e f i c i t was reduced somewhat i n t h e l a t e r months of t h e y e a r . From
t h e l a s t q u a r t e r of 1961 through t h e l a s t q u a r t e r of 1962, the q u a r t e r l y t r a d e
d e f i c i t f l u c t u a t e d i n a narrow range of $58 t o $70 m i l l i o n a t a monthly r a t e ;
in 19.61* a very rapid r i s e i n imports had caused the t r a d e d e f i c i t t o grow
n e a r l y two-fold i n the space of a y e a r .
Table 5«
Imports c , i , f .
Exports f . o . b .
Balance
Switzerland? Seasonally°Ad jus ted Foreign Trade
($ m i l l i o n s ; monthly average)
—
I
II
1961
III
217
168
216
168
-U9
4i8
1962
IV
I
II
III
IV
228
172
2iil
ITS
250
181
2W
186
256
186
251
187
-56
-66
-69
-58
-70
-6ii
I n t e r n a t i o n a l r e s e r v e s . The gold and f o r e i g n exchange reserves of the
Swiss N a t i o n a l Bank declined $21 m i l l i o n i n November because of a $31 m i l l i o n
drop i n gold holdings, (See Table 6,) With commercial banks a l r e a d y beginnihg
t o r e p a t r i a t e funds f o r year-end i n t e r n a l needs, and with the higher I t a l i a n
demand f o r f r a n c s , i t seems evident t h a t s p e c i a l t r a n s a c t i o n s were responsible
f o r the November reserve d e c l i n e .
OFFICIAL USE ONLY
OFFICIAL USE ONLY
- 7 "
The $260 m i l l i o n r e s e r v e i n c r e a s e i n -December was v i r t u a l l y i d e n t i c a l
w i t h t h e r e p o r t e d $255 m i l l i o n of d o l l a r - f r a n c swaps which Swiss commercial banks
made o v e r t h e y e a r - e n d w i t h t h e Swiss N a t i o n a l Bank and t h e Bank f o r I n t e r n a t i o n a l
S e t t l e m e n t s . To c a r r y o u t t h e s e swaps, t h e l a t t e r two i n s t i t u t i o n s made two t y p e s
of swaps w i t h each o t h e r . According t o t h e Neue Z u e r c h e r Z e l t u n g , t h e Swiss
N a t i o n a l Bank d i d n o t wish t o l e t i t s d o l l a r h o l d i n g s r i s e " t o o f a r above t h e
l i m i t of Fes 750 m i l l i o n / | l 7 5 m i l l i o n ^ r e c e n t l y e s t a b l i s h e d , f ( J a n u a r y 12, 1 9 6 3 ) .
T h e r e f o r e , t h e SNB swapped* d o l l a r s f o r gold w i t h t h e BIS, I n t u r n , t h e BIS o b t a i n e d
t h e f r a n c s f o r i t s swaps w i t h Swiss commercial banks by swapping gold f o r f r a n c s
w i t h t h e SNB,
As a consequence, n e a r l y a l l of t h e commercial b a n k s ' swaps were
r e f l e c t e d i n t h e gold h o l d i n g s of t h e Swiss N a t i o n a l Bank, which i n c r e a s e d $21*7
m i l l i o n i n December, The SNB's d o l l a r h o l d i n g s r o s e no more t h a n $ l i | m i l l i o n f o r
t h e )nonth. These d o l l a r h o l d i n g s r e a c h e d a s h i g h a s $286 m i l l i o n on December 22,
b u t f u r t h e r d o l l a r - g o l d swaps w i t h t h e BIS c u t them t o $20li m i l l i o n b y t h e end of
t h e month.
Table 6 ,
Switzerland:
Gold and F o r e i g 1 Exchani ;e R e s e r v e s , 1962-63
( I n m i l l i o n s of d o l l a r s
Gold
1962
October
November
December
1963
January
February
F o r e i g n Exchange
31
30
7
15
22
31
2,153
2,1421
2,1*21*
2,1433
2,563
2,668
180
191
188
229
287
2014
7
15
23
31
7
15
2,566
2C6
202
201
199
193
190
2,1482
2,14#
2,1461
2,1461
Total
2,633
2,612
2,612
2,662
2,850
2,872
2,772
1 8
2,653
2,650
Swiss N a t i o n a l Bank r e s e r v e s d e c l i n e d i n J a n u a r y by $217 m i l l i o n 5 t h e
d e c r e a s e was spread o u t o v e r t h e month b e c a u s e of t h e u n u s u a l l e n g t h of some of
t h e commercial bank swaps b u t t h e s e swaps were s a i d t o have been e n t i r e l y unwound
by t h e end of J a n u a r y . For t h e month, t h e d e c l i n e i n SNB r e s e r v e s was $38 m i l l i o n
s h o r t of t h e swaps r e p o r t e d t o have been e n t e r e d i n t o b y t h e commercial b a n k s .
I t i s n o t known what accounted f o r t h i s a p p a r e n t d i f f e r e n c e . R e s e r v e s f e l l $h
m i l l i o n i n t h e f i r s t two weeks of F e b r u a r y .
OFFICIAL USE ONLY
OFFICIAL USE ONLY
- 8 -
Exchange r a t e s . With f u n d s f l o w i n g t o S w i t z e r l a n d , t h e Swiss f r a n c was
s t r o n g i n November and December, Except f o r t h e l a s t few days of t h e y e a r , t h e
s p o t d o l l a r i n S w i t z e r l a n d was e i t h e r a t i t s lower l i m i t of SF l i , 3 l 5 o r quoted a t
no h i g h e r t h a n SF it,317. (See Table 7 . )
As Swiss banks slowed t h e i r r e p a t r i a t i o n of exchange i n l a t e December
and t h e n p l a c e d f u n d s abroad a g a i n dji J a n u a r y , t h e d o l l a r s t r e n g t h e n e d , and t h e
r a t e r o s e from SF 1j.315 on December 20 t o SF it,328 on J a n u a r y l E , From t h e n
t h r o u g h February 15, f l u c t u a t i o n s were w i t h i n t h e range from SF It.322 t o SF b . 3 2 7 .
The s p o t pound, which was quoted a t SF 12.087 a t t h e b e g i n n i n g of
November, s t r e n g t h e n e d g r a d u a l l y i n t h e n e x t two months and t h e n more s h a r p l y i n
t h e new y e a r , r e a c h i n g SF 12,11*5 on J a n u a r y l i t . The u n f a v o r a b l e c o u r s e of
B r i t a i n ' s Common Market d i s c u s s i o n s a f t e r P r e s i d e n t de G a u l l e 1 s J a n u a r y lit p r e s s
c o n f e r e n c e caused s t e r l i n g t o weaken, and t h e q u o t a t i o n was SF 12,122 on
F e b r u a r y 9.
The d i s c o u n t on t h e 3-month forward d o l l a r held i n November a t around
t h e l e v e l of 0 , 2 p e r c e n t p e r annum ( s e e Table 7 ) , b u t t h e q u o t a t i o n s h i f t e d t o
show a premium i n e a r l y December a s t h e n e t f l o w of bank f u n d s t o S w i t z e r l a n d
i n c r e a s e d . The premium i n c r e a s e d t o 0<60 p e r c e n t on J a n u a r y 11 even a s banks
were p l a c i n g f u n d s abroad a g a i n . The premium t h e n c o n t r a c t e d somewhat t o 0.1*2
p e r c e n t p e r annum on J a n u a r y 18, and remained n e a r t h a t l e v e l through F e b r u a r y ] $ ,
The changed p o s i t i o n of t h e 3-month forward d o l l a r on t h e Swiss market
has meant a h i g h e r covered n e t r e t u r n t o Swiss i n v e s t o r s on s h o r t - t e r m f o r e i g n
i n v e s t m e n t s . As shown i n Table 7, t h e n e t r e t u r n on t h e 3-month U.S, T r e a s u r y
b i l l r o s e from about 2 - 2 / 3 p e r c e n t i n November t o around 3 - 1 / 3 p e r c e n t i n
J a n u a r y and e a r l y F e b r u a r y , mainly because of t h e s h i f t i n t h e forward d o l l a r
r a t e . This gave such i n v e s t m e n t s a h i g h e r n e t r e t u r n t h a n t h a t on 3-month bank
d e p o s i t s i n S w i t z e r l a n d (which w as somewhat lower i n J a n u a r y - F e b r u a r y t h a n i n
November-December), The covered y i e l d on 3-month E u r o - d o l l a r d e p o s i t s remained
w e l l above t h e r a t e on 3-month Swiss bank d e p o s i t s ,
(See Table 7 . ) But, a f t e r
i n c r e a s i n g s h a r p l y i n December, t h i s E u r o - d o l l a r y i e l d d e c l i n e d t o around t h e
November l e v e l because of a r e d u c t i o n i n r a t e s p a i d on E u r o - d o l l a r d e p o s i t s , ,
Gold p r i c e s . Following t h e i r s h a r p r i s e a t t h e time of t h e Cuban c r i s i s ,
gold coin p r i c e s r e t r e a t e d f o r s e v e r a l weeks. The V r e n e l i , which had touched
SF 1*3,50 on October 2b, was t r a d e d a t SF 1*0,00 on November 2, and by December 7
t h e p r i c e was down t o SF 3 7 . 7 5 , (See Table 7 . ) Market r e p o r t s s t a t e d t h a t i n
1962 t h e r e was an absence of t h e l i v e l y Christmas b u s i n e s s i n gold c o i n s seen i n
o t h e r y e a r s . There was s u b s e q u e n t l y a moderate r e v i v a l of demand which r a i s e d
t h e p r i c e t o SF 38,25 on J a n u a r y 1*, b u t t h r o u g h e a r l y February t h e r e was no
f u r t h e r s i g n i f i c a n t change, At SF 3 8 , 2 5 , t h e V r e n e l i p r i c e was a t t h e l e v e l t h a t
had p r e v a i l e d from e a r l y August t o l a t e October,
Europe and B r i t i s h Commonwealth S e c t i o n ,
OFFICIAL USE ONLY
- 9 -
Table 7 °
S w i t z e r l a n d : Money R a t e s s Exchange R a t e s a and Gold P r i c e s
Forward
Swiss
franc
(3-mo.)
16
23
30
Dec, 7
Hi
21
28
1963-Jan, k
11
18
25
Feb, 1
8
12
1962-NOV,
+0,21
+0,16
+0.18
0,00
-0.18
-0.2^
-0,37
—0,i|8
-0,60
-0,1*2
-0,1,0
-0.38
-0.39
-0,1(3
US Tr . b i l l
Net
Bill return
y i e l d i n SF
2,83
2,8k
2,86
2.8k
2.85
2.89
2,98
2,90
2,89
2.92
2.93
2.91V
2.95
2,92
2.62
2.68
2,68
2,8%
3,03
3.1k
3.35
3.38
3,k9
3.3k
3.33
3.32
3.3k
3.35
Euro-dollar
deposit
Net
London r e t u r n
r a t e i n SF
It.06
U.X3
3.9li
lt.06
ll.31
i|.13
lt.13
3.97
3.69
3.59
3.59
3.56
3.56
3.53
3.85
3.97
3.76
L.06
it. 1)9
ll.38
ll.50
ii.i)5
lj.29
It.01
3.99
3.9U
3.95
3.96
Swis s
bank
deposit
(3-mo.)
2.75
2.9li
2.88
2.88
2.88
2.88
2.88
2,63
2.63
2,63
b/2.63
H/2.63
H/2.63
~
Spot
$ in
SF
Spot
£ in
ST
Gold
coin 5^
i n SF
JU.33-5
li.317
It.316
lj.315
14.315
!,.3l8
14,320
L.321
I1.326
lt„32lt
lt„325
1.325
It,322
It,323
12.087
12.103
12,099
12.096
12,097
12.106
12.110
12,112
12.137
12.130
12.133
12.128
12.122
39.50
38.75
38.75
37.75
37.25
38.25
37.75
38.25
38.25
38,25
a / "Vreneli" 2 0 - f r a n c p i e c e (0.1867 t r o y ounces1 $ 6 . 5 3 a t $35 per ounce).
b / Estimate based on market r e p o r t s .
Table 8 » Switzerland s S e l e c t e d C a p i t a l Market S t a t i s t i c s
C a p i t a l market y i e l d s
Deposit c e r t ' s
Long-term 12 can5
govt.
tonal
large
bonds
banks
banks
1962 - High
Low
3.31
2.98
3,39
3.35
3.29
3.29
Nov,
3,11
3.09
3,09
3.09
3.09
3.10
3.11
3.11
3.39
3,39
3.39
3.39
3.39
3.39
3.39
3,39
3.39
3.39
3.39
3.39
3.39
3.39
3.39
3.39
9
16
23
30
Dec. 7
lk
21
28
New i s s u e s
(§ m i l l i o n s 5 monthly a v e . or month)
(New money r a i s e d )
Fgn.
Total
.
Swiss Swiss
bonds stocks
bonds Gross Net
I960
17.3
3,8
1961
Qtr,
19.8
2k, 0
17,6
19,6
18.2
7.2
lk.3
6.8
1.2
6.6
I
II
III
IV
21.8
2k.5
26,8
16,6
1963
18.8
Jan, k
3.11
3.39
3.39
July
6,1
11
3.10
3.39
3.39
Aug,
15.0
18
3.11
Sept.
28.6
25
3.13
Oct.
23.k
Feb, 1
3.13
Nov,
29.6
8
3.11
Dee,
3.5
a / Net of reimbursements. Amounts by type a r e g r o s s .
b / The J u l y borrowing was a conversion l o a n and did n o t
1962
Qtr.
I
n
III
IV
12.8
15.6
21.7
5.3
6.9
b/
1.1
~
lk.8
•0 .
6,k
9,6
k. 7
~
r a i s e new
10.8
31.8
26.6
18.6
25.9
15.5
18.6
lk.3 .
k5„ 7
6k, 2
39.9
39.5
39,1
k2*6
63,k
3k 0 0
38.6
3k.2
12.7
20.2
13.2
7.0
10.5
~
11.6
9.3
11,6
lk.0
5,8
'
money.
38,3
k7.3
60.3 . k5.k
61.7
53.9
28,9
27.8
18.8
36.2
7,2
5,0
kl.l
ki.5
37.9
37.2
kl.k
39,8
53,1
k.3
12.2
lk.0
INTEREST ARBITRAGE, UNITED STATES S
CANADA
T h u r i d o y fig
3 - M O N T H TREASURY
BILL RATES
"Ml
RATE D I F F E R E N T I A L A N D
FORWARD C A N A D I A N DOLLAR
F O R W A R D 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
EXCHANGE COVER
NET I N C E N T I V E IN F A V O R OF C A N A D A •
M
1960
1961
1962
S
1963
D
INTEREST ARBITRAGE, N E W
3 - M O N T H TREASURY
YORK/LONDON
BILL RATES
RATE D I F F E R E N T I A L A N D
3-MONTH
FORWARD STERLING
1
1
1
1
1
1
1
1
1
1
R A 1fE D I F F E R E N T I A I L W I T H F O R W A f i !D EX C H A N I G E C O V E F t
|
-
-
IN FA V 0 8 OF l O N D O l < K
y
t / l
IN FA V O B OF
i
i
1 |
M
I |
J
S
1 1 • | |
D M
I960
1 1
J
1961
1 1
$
1 1
D
1 1
M
1 ^ 1
1 1
J
1962
1
-
1 1
$
1 1
J>
1 1
M
1 1
J
1 1
$
1963
1 1
D
X
•
INTEREST A R B I T R A G E FOR G E R M A N
COMMERCIAL BANKS
Friday figures
P-e
3 - M O N T H TREASURY
-EURO-DOLLAR
BILLS, INTERBANK L E N D I N G
D E P O S I T RATES
RATE A N D
!
GERMAN INTERBANK
I L O A N RATE
1
1
I
RATE DIFFER E N T I A L. A N D
-
SPREJ
1
INTERBJ
A
1
1
I
1
J
1
1
i
1
i
FO R W A RD D E U T S C H E M A R K
OR OF FRA
F O R W A R D RATE
DISCOUNT ( - 1
RATE
1
1
-
\e
1
—
r
V
—
1
r
v
-
y —
-
\
v
T R E A S U R Y BILLS u
1 1 1 1 1 1 > v
i
i
W
i
i
r
i
i
1
i
M
i
i
i
i
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 F A V O R OF F R A N K F U R T " ( + )
fcAf—
1961
1942
* Note: Special forward rale available lo German commercial banks.
19*3
i
i
i
INTEREST A R B I T R A G E , F R A N K F U R T /
LONDON
3 — M O N T H TREASURY BILLS A N D I N T E R B A N K
L E N D I N G RATES
UNITED KINGDOM TREASURY I I U S
G E R M A N T R E A S U R Y RILLS
RATE D I F F E R E N T I A L A N D
3—MONTH
FORWARD STERLING
VOR OF U N I T E D K I N G D O M RILLS O V E R :
-
J
C :
. G E R M A N T R E A S U R Y RILLS
L
1
J
f
V
x l " ^
NTERIANK
V
.
I
I.
r
i
/
|
-
-
1
V
Di.c.t
-
/—V
-
-
1 1
M i l l
I 1
i i
i i
1 1
1 1
11
11
11
11
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
V—
{ A . .
t
o
r
n
M
1961
1962
J
1963
S
SHORT-TERM
INTEREST
RATES *
—t
I V~W
x , xV
CANADA
f
1962
"X" 3-month Ireosury bill roles for oil countries except Japan. (3 month interbank deposit rate) and Switzerland [3-month deposit rote) .
"J" 3-month role for U 5 dollar deposits in London
LONG-TERM
BOND
YIELDS
-V
1959
1960
1943
INDUSTRIAL
STOCK
INDICES*
,
.SWITZERIAND
GERMANY
\
1963
Note:
Japan: Index of oil ilocki traded on Tokyo exchange
9 5 8
=
1 0 0
Ratio scale
SPOT
E X C H A N G E RATES - M A J O R
CURRENCIES
AGAINST
U.S.
DOLLAR
Above
.!
par
.8
3-MONTH
FORWARD
Friday figures
A G A I N S T U. S.
AGAINST
EXCHANGE
RATE
DOLLARS
POUND
STERLING
- LONDON
U. S. DOLLAR
AGAINST
POUND
STERLING
- LONDON
1962
@FedFRASER