Full text of H.13 Selected Interest and Exchange Rates, Weekly Series of Charts : January 12, 1962

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I
DIVISION OF INTERNATIONAL FINANC1

BOARD OPOOVSRNOM

r

H. 13
No. Ii2;

OF THE

~

. Januaiy 12, 1962.

I

^CAPITAL MARKET DEVELOPMENTS ABROAD
I. Canada
II. Eight Charts on Financial Markets Abroad
I, Canada: Money and Capital Markets During December

Short-term interest rates rose sharply in Canada during December but
yields on intermediate and long-term bonds showed little change. The Treasury
bill yield rose from 2.50 per cent on November 30 to 3.08 per cent on January
U. During this period, general public purchases of Treasury bills were sufficient to absorb substantial bill sales by the chartered banks. These sales
reduced the liquid asset ratio of the banks from almost 19.5 per cent of
deposits in late November to 18„7 per cent at the end of December. With some
tightening in Canadian money markets, some investment dealers found it necessary
to borrow from the central bank.
During the month, the banks were unusually large purchasers of
Government bonds, absorbing heavy sales by the public and part of a recent
Treasury offering. The Bank of Canada made some switches„from long to short
maturities to cushion the sharp rise in rates in the shorter end of the market
but only a minor net addition was made to its bond portfolio and none to its
bill holdings during the month,
The tightening of credit conditions during the past month took place
against a background of a further drop in seasonally-adjusted unemployment in
November and press reports of an accelerated pace of Canadian business expansion.
Rising exports, particularly to the United States, have contributed to the rise
in activity„ Exports in the third quarter were up 11 per cent to a new high level.
However, rising domestic demand also brought imports up 12 per cent in spite of
the lower Canadian dollar.
Despite the favorable export position, the Canadian dollar declined
from 95.9 U.S. cents at the end of November to 9!?«7 U.S. cents on January 9, and
there are indications of some further reserve declines. Heavier imports and
year-end dividend transfers contributed to the weakening of the currency.
Money market. Although high levels of liquidity continued to prevail
through December, there was some tightening in Canadian money markets and shortterm interest rates rose. The average auction yield on the 3-month Treasury bill
rose from 2.^0 per cent at the end of November to 3.08 per cent by January U„
(See Table and Chart 1) The 6-month bill rose from 2.73 per cent to 3.2lt per
cent. (See Table) Weekly average closing rates for day to day money moyed up
from 2.23 per cent to 3.00 per cent,
NOT FOR PUBLICATION
DECONTROLLED AFTER SIX MONTHS



NOT FOR PUBLICATION

-

2

-

During the five weeks ending January h} the chartered banks sold
$56 million of Treasury bills and the general public purchased
million.
The-<Bank of Canada made no net changes in its bill holdings. (See Table)
However, the chartered banks reduced their outstanding day-to-day loans in early
December and authorized investment- dealers borrowed temporarily from the Bank of
Canada. The Bank's "purchase and resale"' agreements reached $22.9 million on
December 20, but these were repaid by January 3.
The yield on the Canadian 3-month Treasury bill rose to 36 basis points
above the U.S. bill yield by early January, after remaining below the U.S. bill
throu^i November. The net incentive to hold the Canadian, bill, covered for
exchange risk, rose to about 0.50 per cent per annum in mid-December, but declined
to about 30 basis points in early January as the forward Canadian dollar shifted
from a premium to a small discount. (See Table and Chart 1)
Yields on short-term finance paper in Canada also rose more rapidly in
Canada than in the United States during December, As a result, the yield spread
widened from about 12 basis points on December 1 to over 50 basis points on
December 29. Canadian and U.S. yields for 30 to 89 day paper for leading acceptance
houses in Canada and the United States were as follows (in per cent per annum):
Canada
December 1
29

2.75
3,25

U.S.
2.63
2,63-2.75

Spread
0.12
0.56

Bond market. Bond yields showed a slight rising tendency during
December, but, except for some shorter-term maturities, rates were up onlv a
few basis points. The McLeod, Young Weir & Co., h.0 Bond Yield Average, showed
an increase of 3 basis points for non-government bonds (with maturities of about
15 years) from December 1 to December 29 as noted in the following table:
Dec. 1

Dec. 29

10 Provincials
10 Municipals
10 Public Utilities
10 Industrials

5,30
5.52
5,27
5.32

5.36
- 5.53
5.29
5.33

U0 Bond Yield Average

5.35

5.38

Canadian Government bonds with maturities of 3 years and over also rose only a
few basis noints. (See Table) However, some shorter maturities rose as much as
19 basis points. A comparison of yields on some selected maturities for endNovanber and early January are shown below;
Maturity
May 1961
Jan. 1975-78
Sect. 1983




Nov. 29

Jan. U

3.57
U.92
97

3.76
1.96
5.00

NOT FOR PUBLICATION

NOT FOR PUBLICATION

- 3 —

The chartered banks continued to make unusually large purchases of
Government bonds and thus absorbed heavy sales by the general public. In the
five weeks ending January L, the banks bought $115 million and the general ' • .
public sold $112 million of bonds. The Bank purchased $26 million for the
Government Account and $16 million for its own portfolio. (See Table) The
Bank also made some switches from maturities of over-2-years to shorter bonds
to hold down the sharp yield rise in shorter maturities. Total outstanding
Government bonds rose by $i±6 million.
Yield spreads between comparable Canadian and U.S. Government bonds
showed little change through the month. (See Table) The following table compares
these changes for several maturities of selected comparable Canadian and U.S.
securities:

8 year bond
20 year bond
25 year bond
35 year bond

Nov. 29

Jan. 3

O.lU
0.78
0.80
1.13

0.09
0.78
0.81
1.11

According to A. E. Ames & Co., $911 million of new securities were
issued during November, about half of which represented the roll-over of Treasury
bills. Most of the remainder consisted of new issues of Provincial and Municipal
bonds. None of these were reportedly sold on the U.S. market.
Debt management program. On January 2, the Minister of Finance announced
the details of a new $250 million issue of short- and medium-term bonds to be
dated January 15, 1962. The new issue will include two maturities as follows:
1. $150 million of 1 year 2-1/2 month, 2-3A per cent bonds
due April 1, 1963, priced at 99.15 to yield about 3.U7
per cent to maturity;
_
2. $100 million of 6-year, U-l/U per cent bonds, due January
15, 1968, priced at 99.50 to yield about li. 35 per cent to
maturity.
The $150 million of 2-3/U per cent bonds, will be offered for cash. The Bank
of Canada has agreed to acquire the $100 million of k-l/k per cent bonds in
exchange for $50 million of the 3 per cent bonds due May 1, 1962, and $50
million of the 3 per cent bonds due June lb, 1962. As a result of this new
issue, the May 1 maturity will be reduced to $100 million and the June 15
maturity to $190 million, and new cash needs for the current fiscal year will
be reduced by $150 million.
The Canadian authorities have pursued a policy of offering **... more
frequent issues of smaller size ...lt since late i960, to space maturities better
and to avoid the disturbances which larger issues tend to produce in Canadian
markets. These offerings have also been concentrated on the short-term sector




NOT FOR PUBLICATION

NOT FOR PUBLICATION

- u -

to free the long-term sector for corporate and local-government borrowing. The
Bank of Canada has facilitated this program by purchasing in advance a sizable
portion of maturing issues and exchanging these maturities for new refunding
issues. These holdings have been used by the Bank to contribute to price stability
of the new issue during-the" is suing period. . '
Since April, 1961, the Minister of Finance has been able to refinance
over $1 billion of securities and to sell another $1|20 million for cash. With
a net sale of $517 million of Savings Bonds since last April total new cash
raised has exceeded $900 million. The authorities had anticipated $l_billion
of new cash needs but current fiscal year needs are astimated to be between $1
and $1.5 billion on the basis of the current rate of Treasury spending and
receipts.
__
Bank loans and the money supply. The upward movement of general
bank loans and the money supply continued through December. Seasonally adjusted
loans rose $100 million, or 1.8 per cent, in December. The total rise since the
end of June has been 8.9 per cent, most of which took place in October-December
when loans rose $3h2 million, almost 6.5 per cent. (See Table) Despite some
rise in loans, the chartered banks continued to enjoy a liquid asset ratio
nearly U percentage points over the required minimum.
As a result of the loan expansion and the Government's cash deficit,
the seasonally adjusted money supply (held by the public) rose 2 per cent in
December. Sihce end of June, the money supply has risen 6,3 per cent. (See Table)
Foreign trade. Seasonally adjusted exports continued to move to new
peak levels. Third-quarter exports rose 11.1 per cent (in terms of Canadian
dollars), largely as a result of continued increases in sales to the United
States. However, imports rose 12.2 per cent in the third quarter reflecting
expanding domestic demand; in October the monthly rate jumped another U.5 per
cent over September to a new record level. During the 9 month period, the
seasonally adjusted trade surplus was $]ii2.5 million compared with $10,3 million
in the same period of I960. This improvement reflects a 7.3 per cent increase
in monthly average exports over the monthly average for the whole year i960,
while average monthly imports rose only 2.2 per cent.
Trade
Exports
Imports
balance
1960
1961 I
II
III
July
Aug.
Sept.
Oct.




151.1
166.9
U66.U
518.5
525.2
1*91.3
539.1

NOT FOR PUBLICATION

1*58.0
163.8
iiU3o2
197.3
U70.5
513.7
507.8
530.7

- 6.9
+ 3.1
+23.2
+21.2
+51.7
-22.lt
>31.3

NOT FOR PUBLICATION
Foreign exchange. There was some further weakening of the Canadian
dollar through December and early January. After a 1 per cent decline in the
exchange rate and a $32 million decline in reserves in November, the Canadian
dollar declined from 95.85 U.S. cents in early December to 95.66 U.S. cents
on January 9. There are also indications of further declines in foreign
reserves during this period. During the 3-1/2 months following the Finance
Minister's announcement that official efforts would be taken to lower the
exchange rate, the dollar moved down from 100.6 U.S. cents to 97.1 U.S. cents.
There was a sharp upward pressure on the rate in October and reserves went up
$186 million to hold the rate down. Heavy dividend payments in November and
December resulted in a downward pressure. .The early January decline is
believed to reflect a continuation of these payments abroad combined with
increasing commercial demand for foreign exchange.
Change durU.S. dollars
Total
Gold
End of month
ing period
I960 - Dec.
1961 - June
Sept.
Oct.
Nov.

885.3
905,9
926.6
931.6
9111.1

9U3.9
1,079.3
997.7
1.179.0
1,131.7

1,°2872
1,985.2
1,921.3
2,110.6
2,078.8

+156.0
- 60.9
+156.3
-31,8

VJith the widening of the spread favoring Canadian short-term '
the premium on the 3-month forward Canadian dollar declined in December
s m a l l discount developed in early January. (See Table)

securities,
.-:.nd a

Stock exchange. Industrial stock prices rose slightly further in
January.despite some leveling in the second week. The weekly average for the
index of industrial stock prices in late December was 0.7 per cent above the
end of November compared with a rise of about 0.3 per cent in the New York
Standard & Poor industrial index during the same period. (See Chart 6)
Average for
week ending
i960
1961

Sept.
June
Oct.
Nov,
Dec.

29
15
26
30
7
ia
21

-

DBS
industrials
2)43.6
329.7
328.6
31:2.5
3W.5"
3U3-2
3UU.9

NY Standard &
Poor Industrials
55.69
69.55
71.61
75.L6
75.89
76.36
75.70

Duririg the first two weeks of December the volume of trading continued high,
at about $19 million a week, but down from the end of December highs of over
32 million.
British Commonwealth, Europe and Soviet Area.
II. Eight Charts on Financial Markets Abroad




NOT FOR PUBLICATION

6 -

Selected Canadian Money Market and Related Data
3-mo,. Treas. bills
Spread
Canada
u.s^/ over U.S.
I960 - High
Low
1961 - High Low
Novo 30
Dec, 7
lk
21
28
Jan. k

5.1k
1.68
3.3k
2.26,
2.50
2.62
2.73
2.93
2.99
3.08

k.53
2.10
2.55
2.17
2.55
2.58
2.61
2.60
2.66
2.72

1.62
-0.82
1.10
-0.13
-o,o5
0.0k
0.12
0.33
0.33
0.36

Canadian dollar
toot
3-mo. discount (-1
s
l
f
2/
forward premiumC+ffi
(

105,27
100.33
101.72
95.91
95.91
95.98
95.53
95.88
95.88
95.75

Net Incentive to
hold Can.
billS/
1.99
-0.57
0.89
. -0.20

0.99
-0.91
o.k5
-0.56
95.97

96.00

95.8k
95.92
95.89
95.73

0.20

0.26

0,11
0.15
0.53

0,07
0.03

0.20

o.ko

0.07
-0.07

0.29

" a/ Average yield at weekly tender on Thursday.
%/ Composite market yield for the U.S. Treasury bill on Thursday close of business,
c/ In U.S. cents,
"3/ Spread between spot rate and 3-month forward Canadian dollar on Thursday
ojoelng, expressed as per cent per annum.
zJ
imium (column 6).
Selected Government of Canada Security Yields
6-mo. Treas. bills
~~
Spread
Canada
ovegy
I960 •= High
Low
1961 - High
Low

5.33
1.99
3.63^
2.35^

1.37
-0.86
1,15
-0.11 .

Intermediate
bonds (8 yr.)
Spread
Canada over,

2/

u.sjy

^.55
a.09
k.75
k.22

loll
0.21
1.16
0.25

Long-term bonds
(20 year) ~
(35 year)
Spread
Canada
C

T

5.k2
U,63
5.19
k.8o

a

uTJ/

1.36'
0.85
l.ko 0.78

5.28
k.68
5.23
k.92
k.91
U.95
k.95
U.95
k.95
k.93

Nov. 29
-0,06
0.1k
0.78
- 2.73
k.15
k.85
+0.02
0.11
Dec. 6.
2.87
a,17
k.89
0,79
0.08
U.18
0,06
2.98
13
k.90
0.79
20
0.22
3.08
U..17
0.05
k.89
0.79
OeOk
27
0.78
0.23
k.89
3.1k
k.17
Jan. 3
0,28
a.16
0.09,
k.89
0,78
3.2k
Average yield at weekly tender on Thursday.
Spread between Canadian auction rate and composite market yield of U.S.
bill on close of business Thursday.
Government of Canada 2-3A per cent of June 1967-68•
Spread over U.S. Government 2-1/2 per cent of 1963-68.
Government of Canada 3-lA per cent of October 1979*
Spread over U.S. Government 3-lA P®r cent of 1978-83*
Government of Canada 3-3A per cent of September 1996 - March 1998.
Spread over U.S. Government of 199$ •

I




1.61
0.95
1.59
1.1k
1.13
1.1k
1.13
1.1k
1.13
loir

7 Canada: Changes In Distribution of Holdirgs of Canadian
Government Direct and Guaranteed Securities
(millions of Canadian dollars, par value)
Bank of Canada
Treas.
bills - Bonds
1961-Jan.
Feb.
Mar.
April
MayJune
July
Aug.
Sept.
Oct.
Nov.
Dec.a/

- 10.
- 7
- U7
+ 9
. + 17
- 7k
+ 69
0
+ 16
-105
- 9
0

- 38
- 68
+120
+ 59
- 22
+ U3
+ 21
+ 21
+ hh
+ 1U
+ 3
+ 16

Government
Total
+ 15
- 96
- 25
- 2
- 1
+ 5
+ 16
+ 32
* 9
- 39
-125
+ 35

Chartered banks
General cublic
Treas.
Savings Treas.
bills
Bonds
bonds Mils
Bonds
+111
+ 23
- U6
- 37 , - 2
+ 88
+ 67
- 6
- 26
+ 39
+ 50
+ 30
+ 6
- 18
-36
- 70
* 6I1
- 52
- 12
- 37
+ 1
+ 63
+ 2U
80
- 33
-» 22
* 62
+ 33
+ 37
- 7
+ 16
+ 11
-23
- 95
- 37
+107
+H18
- 29
- 87
- 35
'+• lio + U2
* 72
- 58
- 2k
+109
+ It
• 'U . - 3
- 31
+ 56
+720
+ L8
- U2
- 67
+115
+ L5
-112
- 56
- 33

Sources Bank of Canada, Weekly Financial Statistics•
&/ Includes changes through January li, 1962.
Selected Canadian Financial Statistics
(in millions of Canadian dollars or per cent)
July
Aug.
Sept. Oct.
Nov.
Dec.
io Money supply: a/
Ik,Oil Hi, 368 11,368 Hi, 399 Hi,695 lii.915
Currency and deposits
312
312
U52
179
389
Less: Govt, deposits
U73
13,882 Hi,056 Hi,013 Hi,08? 14.2U3 lit,556Equals: Privately held
+ 171 + 22ii 7li + 156 + 283
Change in period
U3 +
2 o General bank loaq# a/
Change in period

5,269 5,367 5,378 5,199 5,620 5,720
98 + 11 t 121 + 121 + 100
+
17 +

3. Total Govt, securitiess
Of whichs Treas. bills
Bonds
Savings bonds

17,739 17,885 18,061 18,061 18.58U 18,599
1,885 1,885 1,885 .1,885 1,885 1,885
12,Lok 12,577 12,776 12,729 12,590 12,636
3,U52
3,423 3,Loo 3,Loli 4,109 1,079

U® New security issues b/
Of which sold in U.S.

1,086
12

600
0

l,02li
0

6ii0
0

1,159
7

911
0

5. Chartered bank liquidity:
-Gash reserve
Cash ratio
Liquid assets
Liquid asset ratio

1,025
8.1
2,317
18.3

1,039
8.1
-2,Ul5
18.9

1,062
8.1
2,U65
18.8

1,072
8*1
2,li73
18.8

1,071
8.1
2,516
19.0

1,082
8.1
2,50li
18.7

T>/ Sources A. E. Ames & Co., Ltd.




(Includes public and private securities.)

'

%

:

INTEREST ARBITRAGE, U N I T E D S T A T E S / C A N A D A
T H R E E - M O N T H TREASURY BILL RATES

RATE DIFFERENTIAL A N D F O R W A R D C A N A D I A N DOLLAR

SPREAD IN FAVOR OF CANADA +

t-

,vA

RATE DIFFERENTIAL W I T H F O R W A R D E X C H A N G E COVER




NET INCENTIVE IN FAVOR OF CANADA +

I

INTER EST AR»I T R A G E,_N E W V'ORK/lOJIDON
Per cint_ p»t onnuw
- M O N T H TREASUR

ILL RATES

RATE D I F F E R E N T I A L A N D
j
" 3 - M O N T H FORWARD STERLING

SPREAD I N ' F A V O R OF L O N D O N

4
:1
i.
'
1
1
i
!
..JL
RAT E DIF FEREIN T I A L W I T H
" F O R W A R I D EXC: H A N ( 3E C O V E R

-

IN 1 A V O R () f

)\J

-

-

\ A v

r T V

. !H ! A V O R

i 1

1 (

1 1

1 1




I 1

10ND ON

1 1

i 1

I9 60

1 1

<

• i |A

-

YORK ]

i i

1 1

1 1

1961

1 1

1 1

I 1

1 1

1 1

. CHorl 3 ]

I N T E R E S T A R B I T R A G E FOR G E R M A N C O M M E I
F r i d a y f i gu r « t

'

NKS

:

3 - M O NTH TREASURY BILL RATES AND"
G E R M A N 3 - M O N T H INTER B A N K L O A N RATES

P«r e e n l p e r a n n u m

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

TREASURY BILLS

F O R W A R D RATE DISCOUNT ( - )

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

IIIASUIY IIUS

>3

J;

¥r

:»

m?
Note.

Special forward doll<




liable to German commercial banli

S H O R T - T E R M INTEREST RATES *

/NV'
- » t"»0-P0tLA» • LOHPOw t

I \

CANADA

1951
i t ; 3-monlh treasury bill rales for all countries except Japan (S-monih interbank deposit rote) and Switzerland (3-month deposit rale) . |
"J"j 3-month rate for U. S. dollar deposits in London




L O N G - T E R M B O N D YIELDS

GIIMANY

z-u^v-'-xZ

SWITZIILAND

IfSI




1959

1960

1961

1962

I N D U S T R I A L STOCK I N D I C E S *
1958=100
400

GERMANY

/

\

J
f

^

n ?

SWITZERLAND

J^r'
^ M

1 1 1 II 1 1 11 II 1 f 1 1 II II u

11 11 II T 1 1 1 1 III M i l l

*

JAPAN

y S

usT

4 N

1 1 II M

II i 1111 111 M

r Ti ii ii 111 ii

Japan: Index of all i l o c k i Iraded on Tokyo exchange.




1 1 1 II M

1 1 1 u

I*
M A J O R CURRENCIES i N TERMS OF THE SPOT U . S . DOLLAR

SWISS H A N C

U.I.

STERLING

FRENCH FRANC

DUTCH GUILDS :
I E I G I U M FRANC




V*

3 - M O N T H F O R W A R D RATE
1
1
1
A G A I N S T U. S. DOLLARS

1

GERMAN MAIM

Vs_l

PREMIUM +

-

A

i

...»

-

'OUND STERLING

\

DISCOUNT-

1

I

1 1

1 1

1 1

A G A I N S T P O U N D STERLING - L O N D O N

A G A I N S T P O U N D STERLING - L O N D O N

FRENCH FRANC Jt

DISCOUNT-

1960




1961

J

1 1

^
1

1

1

1 1

1 1

+