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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# F E D E R A L RESERVE SYSTEM H-13 Ho. 6 5 \ w June 2 2 , 1962 "MARKET^EVELOPMENTS ABROAD Io lie Io United Kingdom Nine Charts on F i n a n c i a l Markets Abroad United Kingdoms Money and C a p i t a l Markets i n May Within the p a s t t h r e e weeks, the B r i t i s h a u t h o r i t i e s have taken two s t e p s t o remove r e s t r a i n t s on c r e d i t a v a i l a b i l i t i e s imposed during l a s t J u l y ' s c r i s i s o On May 31, the Bank of England announced that the s p e c i a l d e p o s i t s held a t the Bank were t o be reduced from 3 t o 2 p e r c e n t f o r the London c l e a r i n g b a n k s . This r e l a x a t i o n w i l l add £70 m i l l i o n t o t h e cash p o s i t i o n of t h e London banks» The banks were asked to continue t o give p r i o r i t y to e x p o r t s i n t h e i r l e n d i n g and to avoid advances f o r s p e c u l a t i v e p u r p o s e s , p a r t i c u l a r l y i n a r e a s where r e s o u r c e s a r e f u l l y employed» On June 5 , t h e minimum down-payment requirements f a r h i r e - p u r c h a s e c r e d i t on a l l goods except automobiles was reduced from 20 t o 10 p e r cento These measures a r e t h e f i r s t s t e p s taken by t h e a u t h o r i t i e s t o augment c r e d i t a v a i l a b i l i t i e s * D e s p i t e t h e s l u g g i s h B r i t i s h r e c o v e r y 5 t h e monetary a u t h o r i t i e s have reduced money r a t e s over t h e p a s t few months r a t h e r t h a n r e l a x t h e i r c o n t r o l over c l e a r i n g bank r e s e r v e s 0 The new t u r n i n c r e d i t p o l i c y can be a t t r i b u t e d t o the spare p r o d u c t i v e c a p a c i t y and t h e s l u g g i s h s t a t e of demand i n the B r i t i s h economy and t o the g e n e r a l mood of pessimism which has accompanied the s t e a d y f a l l i n s t o c k p r i c e s i n May* For example, a May survey of t h e F e d e r a t i o n of B r i t i s h I n d u s t r y e s t i m a t e s t h a t 6U p e r cent of t h e f i r m s r e p o r t e d t h e y had s p a r e capacity» D i f f i c u l t i e s i n keeping wage r i s e s w i t h i n the 2 - 1 / 2 p e r cent g u i d e l i n e advanced by t h e government i n i t s "interm incomes p o l i c y " and r e c e n t domestic p o l i t i c a l developments have undoubtedly c o n t r i b u t e d t o the unpromising b u s i n e s s outlook i n t h e country» While the Government had i n c r e a s e d the a v a i l a b i l i t y of c r e d i t only a t t h e end of May, the c o s t of c r e d i t had been d e c l i n i n g c o n t i n u o u s l y d u r i n g the montho S h o r t - t e r m r a t e s f e l l r a p i d l y during t h e f i r s t p a r t of t h e month* r e a c t i n g t o the c u t i n Bank Rate from 5 p e r cent t o U - l / 2 p e r c e n t on A p r i l 26, S h o r t - t e r m r a t e s continued t o f a l l through mid-June , b u t a t a somewhat slower r a t e . B r i t a i n , l i k e most o t h e r European c o u n t r i e s , experienced a s h a r p f a l l i n s t o c k p r i c e s i n May. P r i c e s f e l l on every day during the month e x c e p t on the day when t h e dock s t r i k e was c a l l e d o f f and on May 30 when p r i c e s recovered from t h e i r 6 p e r cent d e c l i n e on Tuesday, May 29. South A f r i c a n gold mining s h a r e s , i n c o n t r a s t t o i n d u s t r i a l s , experienced a s u b s t a n t i a l r i s e i n p r i c e s from mid-May t o mid-June. By e a r l y June, the market was showing an i n t e r e s t i n g i l t - e d g e d s e c u r i t i e s as a o u t l e t f o r f u n d s d i v e r t e d from common s t o c k s . NOT FOR PUBLICATION SECOHTKOIM, W E B AN M 0 T O S NOT FCR PUBLIC AT ION S t e r l i n g was s l i g h t l y weaker i n "the foreign, exchange market i n May than i n the e a r l i e r months cf t h e year<, The r a t e f o r s p o t s t e r l i n g f e l l during t h e l a t t e r p a r t cf the month 9 but i t has s t a b i l i s e d during the f i r s t h a lf of June a t a l e v e l s l i g h t l y below $2 0 8 l 0 The weakening of s t e r l i n g may be a t t r i b u t e d p a r t l y t o a worsening of tne t r a d e balance i n May<> S e c u r i t y s t e r l i n g f e l l s h a r p l y a t the end of Mays r e f l e c t i n g the movement of f o r e i g n e r s out of the London stock market-= Foreign exchange r e s e r v e s continued t o i n c r e a s e i n Hay» I t has been suggested i n e a r l i e r numbers of t h i s review t h a t the s t r e n g t h of s t e r l i n g i n the" f i r s t q u a r t e r of 1962 has been the consequence <, a in parts s u b s t a n t i a l i n f l o w of f o r e i g n c a p i t a l 0 This view i s confirmed i n the e s t i m a t e of c a p i t a l inflow of £200 m i l l i o n during the f i r s t t h r e e months of 1962 made i n the Bank cf England Q u a r t e r l y Review f o r June 1962 o This inflow was placed p r i n c i p a l l y i n two types cf s t e r l i n g a s s e t s s (a) £80 m i l l i o n was from switching of Euro - d o l l a r d e p o s i t s w i t h London i n s t i t u t i o n s i n t o s h o r t - t e r m s t e r l i n g a s s e t s ( e s p e c i a l l y l o c a l - a u t h o r i t y d e p o s i t s ) ? and (b) very l a r g e unrecorded purchases of s t e r l i n g s e c u r i t i e s were made by n o n - r e s i d e n t s 0 The £120 m i l l i o n of s a l e s of Treasury bonds by t h e Government Broker t o " o t h e r home and overseas n o n - o f f i c i a l buyer-?" i s thought t o c o n t a i n s u b s t a n t i a l , purchases by f o r e i g n e r s j f o r e i g n i n t e r e s t i n B r i t i s h s e c u r i t i e s i s suggested by the f a c t t h a t the s e c u r i t y s t e r l i n g r a t e remained over $2*81 from January to April„ Money market<» The d e c l i n e i n s h o r t - t e r m r a t e s which began i n March continued i n May and t h e f i r s t half cf June 0 The a f t e r - t e n d e r market r a t e f o r Treasury b i l l s d e c l i n e d from 3 <>97 per s e n t on May lU t o 3*66 p e r cent on June 15 o (See Table and Chart 5».) Interest arbitrage opportunities during t h i s period were v e r y l i m i t e d * Or, May 2£ s t h e r e was a covered a r b i t r a g e i n c e n t i v e of only 0„12 per cent i n f a v o r of holding U0K0 b i l l s s b u t i t was e l i m i n a t e d during the following week 0 The r a t e s o f f e r e d on three-months local, a u t h o r i t y d e p o s i t s d e c l i n e d s t e a d i l y from mid-March t o the end of Mays as t h e cash needs of t h e l o c a l governments were reduced 5 •and t h e - r a t e held s t e a d y a t Uo56 per cent from May 25 through June 8» (See Table. 0 ) A v e r y small covered a r b i t r a g e advantage e x i s t e d during the f i r s t t h r e e weeks of May f o r h o l d e r s of E u r o - d o l l a r d e p o s i t s t o switch i n t o l o c a l a u t h o r i t y deposits» I t was e l i m i n a t e d towards the end of the month s a s the E u r o - d o l l a r began t o ri.se o The d i f f e r e n t i a l s ( i n p e r c e n t p e r annum) were as f o l l o w s s A p r i l 20 27 h May 0.10 *0 o 02 -5-0 o06 May 11 18 2£ "o0X3 40.10 -0,0k NOT FOR PUBLICATION June 1 8 -0,17 -0ol8 -0„0 9 NOT FOR PUBLICATION - 3 - Stock marketo Stock p r i c e s , which had remained f a i r l y s t e a d y i n A p r i l , d e c l i n e d by 9 per cent during t h e month of Hay„ (See t a b l e below and Chart 7 . ) P r i c e s were i n f l u e n c e d c h i e f l y by developments on Wall S t r e e t , A dramatic i l l u s t r a t i o n of London's s e n s i t i v i t y t o Mew York came on May 29 when p r i c e s i n London d e c l i n e d by 6 p e r c e n t , j u s t as they did i n New York t h e day b e f o r e , This l o s s was almost f u l l y recovered on t h e following day, as had occurred i n New York* P r i c e s continued t o d e c l i n e i n t h e f i r s t week of June, Although stock p r i c e s remained s t e a d y during the second week of June, t h e p r e s e n t market mood may be de s c ribe d as b r i t t l e ® Aside from the i n f l u e n c e of Wall S t r e e t , t h e r e appear t o have been t h r e e p r i n c i p a l domestic f a c t o r s de pr e s s ing stock p r i c e s i n May# They were: (a) a number of reduced c o r p o r a t e p r o f i t s statements f o r 1961 and f o r the f i r s t q u a r t e r of 1962] (b) the r e a l i z a t i o n t h a t the government was prepared t o p r e v e n t f u r t h e r i n f l a t i o n by c u t t i n g back demand, even though t h e b u s i n e s s recovery i n B r i t a i n has been s l u g g i s h ; and (c) the u n c e r t a i n p r o f i t s outlook f o r 1962 i n view of t h e squeeze between r i s i n g b u s i n e s s c o s t s and s t a b l e p r i c e s f o r manufactured goods. In c o n t r a s t t o t h e depressed s t a t e of i n d u s t r i a l s h a r e s , the p r i c e of gold mining stocks has increased s h a r p l y , r i s i n g by n e a r l y 20 p e r cent from mid-May t o mid-June, I n t e r e s t i n gold stocks can be a t t r i b u t e d to t h e i r p r e s e n t high y i e l d s , s p e c u l a t i o n t h a t t h e U0S0 may some day have t o r a i s e the p r i c e of g o l d , and renewed confidence i n t h e economic f u t u r e of South A f r i c a Gilt-edged marks to Yields on U,K, bonds behaved i n a mixed manner during May and t h e f i r s t half of June, Yields i n the s h o r t - d a t e d s e c t o r , exemplified by the. U - l / 2 p e r cent Conversion bond of 1 9 6 U , f e l l s t e a d i l y , from 5.02 p e r cent on May 3 t o U,5U p e r cent on June l l u (See Table and Chart 6 . ) The y i e l d s on long-dated s e c u r i t i e s , however, f e l l only during the second h a l f of May* The y i e l d s r a l l i e d during the f i r s t week of June and then d e c l i n e d , f o r the most p a r t , t o t h e l e v e l p r e v a i l i n g a t the end of May* The y i e l d gap has d e c l i n e d s u b s t a n t i a l l y (see t a b l e below), as a r e s u l t of the r a p i d f a l l i n stock p r i c e s , I t d e c l i n e d from 0,96 on May 3 t o 0,22 on June lU, E a r l y i n May, when t h e Government b r o k e r 8 s supply of a 5 - 1 / 2 p e r cent 1982-8I4. bond were exhausted, i t was r e p l a c e d by an a d d i t i o n a l i s s u e of a 5 p e r cent 1986-89 o f f e r e d a t a d e l i b e r a t e l y u n a t t r a c t i v e p r i c e i n order t o keep some c o n t r o l over the long-term s e c t o r of the g i l t - e d g e d market. E a r l y i n June, when t h e supply of the 6 p e r c e n t 1972 Conversion i s s u e was exhausted, the Government attempted t o keep c o n t r o l over the medium term s e c t o r by V p e r m i t t i n g a £h0 m i l l i o n issue by the London County Council, the l a r g e s t c o r p o r a t e i s s u e ever f l o a t e d . These s e c u r i t i e s were o f f e r e d a t 9 5 - 1 / 2 , giving a gross redemption y i e l d of 6 - 5 / 8 , e f f e c t i v e l y discouraging purchases on the r e s t of the market. NOT FOR PUBLICATION NOT FOR PUBLICATION - h However3 t h i s s i t u a t i o n l a s t e d only f o r one week, as i n v e s t o r s , f o r the f i r s t time since stock p r i c e s began to f a l l , showed keen i n t e r e s t i n t h e g i l t - e d g e d market as an o u t l e t f o r t h e i r funds,. The LoC«,Ce i s s u e rose t o a premium of t h r e e q u a r t e r s of 1 per cento The switch i n the market' i n t e r e s t to g i l t - e d g e d s e c u r i t i e s i s a l s o e v i d e n t from the changed p a t t e r n of new i s sue So In the f i r s t half of June s e v e r a l major companies chose t o r a i s e funds with s a l e s of bonds r a t h e r than stocks 0 London c l e a r i n g banks 0 Bank advances to the p r i v a t e s e c t o r declined s l i g h t l y from mid-April to mid-May, bringing outstanding advances back to the l e v e l of mid-March e I t i s widely believed t h a t the i n c r e a s e i n advances during the f i r s t q u a r t e r of 1962, most of which occurred i n February, can be a t t r i b u t e d t o a temporary demand to f i n a n c e t a x payments e Loans t o the public s e c t o r , on the other hand, increased from A p r i l to May, taking the form c h i e f l y of a d d i t i o n a l c a l l loans» The l i q u i d i t y r a t i o remained a t t h e l e v e l p r e v a i l i n g a t mid-March, 32 e 6 per cento Recent changes i n s e l e c t e d a s s e t s and l i a b i l i t i e s of the London c l e a r i n g banks ( i n m i l l i o n s of pounds) are as follows8 Recent changes i n a s s e t s ( i n m i l l i o n s of pounds; I960 (March) June Sept. Dec. March March Net deposits Liquid a s s e t s Per Amount cent (6,073) +103 +101 - 15 (2,217) + 36 + 23 +123 a/ b/ -123 - 62 - 2U + 2h + 2h (2,937) -122 - U + 17 (2,933) +137 + 6k + 25 (3,086) +129 + 51 + U8 -2,12 ( 3 0 . U +207 (32.2) — 85 -102 - 36 + 71 -216 +177 +112 + 2 -3U9 + 81 + 72 +200 +133 -180 -115 -191 +158 -151 -119 -23 + 11* + 3 -287 +52 +15 —280 +169 + 3 - 3 +190 - 6 - 12 - 90 -250 (32.6) + 2U (32.6) 6 (3L.3) (35.3) + 1U (32.6) (911) + 17 + 13 + 52 Includes loans to n a t i o n a l i z e d i n d u s t r i e s and c a l l l o a n s , Includes commercial and other b i l l s 0 .SL (1,368) +128 +1hh - Loans t o private sector Tot? Advances (31.5) (31=10 (31.6) (31.9) -118 +216 - hh + 2L + 16 Loans t o public s e c t o r '(jovt. seenTreas e T o t a l rities bills */ NOT FCR PUBLICATION +ia NOT FOR PUBLICATION - 5 - I n s t a l l m e n t c r e d i t „ I n s t a l l m e n t c r e d i t o u t s t a n d i n g 9 which had been d e c l i n i n g s t e a d i l y s i n c e l a s t July^ continued t o f a l l i n A p r i l , The expected i n c r e a s e i n i n s t a l l m e n t s a l e s t h a t s p r i n g has f a i l e d t o m a t e r i a l i z e . The Government announced t h a t e f f e c t i v e from June 5* the minimum down payment on i n s t a l l m e n t s a l e s would be reduced from 20 p e r cent t o 10 p e r cent f o r a l l commodities except automobiles<> The r a t e had been r a i s e d t o t h i s l e v e l as p a r t of t h e r e s t r i c t i v e program i n i t i a t e d l a s t J u l y i n response t o t h e s e r i o u s balance of payments d i f f i c u l t i e s then* Commenting on t h i s r e l a x a t i o n , the P r e s i d e n t of t h e Board of Trade s a i d ? "The h i r e purchase d e b t has been going down and the economic p o s i t i o n of the c o u n t r y i s such t h a t i t w i l l be p o s s i b l e t o allow t h i s modest r e l a x a t i o n t o take p l a c e , " Changes i n c r e d i t o u t s t a n d i n g s i n c e June 1961 ( i n m i l l i o n s of pounds) were: Changes Total June 1961 306 651 Shops Finance houses Total 1962 1961 OctoJulyDec. Sept. + 6 - 3 - 1 -32 957 - k JaneMar. -13 -26 -26 -39 Foreign t r a d e . Exports continued t o i n c r e a s e slowly i n May, b u t t h e r e was a s u b s t a n t i a l i n c r e a s e i n i m p o r t s . The s e a s o n a l l y a d j u s t e d t r a d e balance* t h e r e f o r e 9 d e t e r i o r a t e d t o a l e v e l s l i g h t l y lower than t h a t f o r F e b r u a r y . However, the r i s e i n imports i n Hay may be a t t r i b u t e d p a r t l y t o t h e a n t i c i p a t i o n of a dock s t r i k e . S e a s o n a l l y - a d j u s t e d t r a d e f i g u r e s (monthly averages i n m i l l i o n s of pounds) f o r r e c e n t months were: I960 1961 Jan. Feb. 1962 Mar. A m Imparts c . i . f . Exports f . o . b . Re-exports -380 296 12 -367 307 13 -380 300 12 -362 307 11 -358 312 11 -359 31U 1U -380 316 15 Trade balance - 72 - U7 - 68 - Mi -•35 - 31 - h9 Foreign exchange r e s e r v e s . The gold and f o r e i g n exchange r e s e r v e s continued to r i s e i n May. The recorded £19 m i l l i o n i n c r e a s e must be a d j u s t e d upwards by £25 m i l l i o n t o take i n t o account the repayment t o the IMF and downwards by £18 m i l l i o n t o t a k e i n t o account t h e exchange of s t e r l i n g f o r d o l l a r s w i t h the F e d e r a l Reserve Bank of New York. Recent monthly changes i n r e s e r v e s ( i n m i l l i o n s of pounds) a r e a s f o l l o w s § 1961 Reported figure Adjusted for special transactions • 9 Jan. •33 -18 +33 •59 NOT FOR PUBLICATION 1962 Feb. Mar. T T •10 •80 •72 "35 •32 •26 HOT FOR PUBLICATION Foreign exchange market. The spot r a t e remained f a i r l y steady during . the f i r s t t h r e e weeks of May* staying around $2.8l-l/Uo The r a t e f e l l during the l a s t week of the month and then s t a b i l i z e d during the f i r s t half of June a t s l i g h t l y under $2.81. The Economist observed (June 9, 1 9 6 2 / p . 1021) t h a t "the weakness of the spot r a t e h a s , however, been accompanied by continued s t r e n g t h i n the forward r a t e , suggesting t h a t some operators who were long of s t e r l i n g may p o s s i b l y have switched temporarily i n t o d o l l a r s and covered t h e i r r e t u r n i n t o s t e r l i n g . " Selected d a i l y r a t e s f o r spot s t e r l i n g from A p r i l through the f i r s t half of June ( i n U.S. c e n t s per pound) weres Apr, 6 13 20 27 281.38 281.52 281.L5 281.25 May h 11 18 25 281.28 28l.2k 281.29 281.15 June 1 8 15 280.97 280.80 280.97 Security s t e r l i n g f e l l s t e a d i l y during the period under review* r e f l e c t i n g the attempts of f o r e i g n i n v e s t o r s on the London stock exchange t o r e p a t r i a t e t h e i r f u n d s . The r a t e weakened along with stock p r i c e s a t t h e end of A p r i l s f a l l i n g from #2.8150 on A p r i l 20 t o $2.7950 on June 6 . End of week r a t e s f o r s e c u r i t y s t e r l i n g ( i n U.S. cents per pound) f o r A p r i l , May, and June were: Apr. 6 281.50 13 281.50 20 > 281.50 27^ 281.19 May h 11 18 25 281.25 281.25 281.13 281.06 June 1 8 15 279.75 280.00 280.30 On May 17, the "hard58 and 511 s o f t " d o l l a r markets were combined. Until t h a t day, B r i t i s h i n v e s t o r s could acquire U.S. d o l l a r s f o r i n v e s t i n g i n U.S. s e c u r i t i e s from a pool c o n s i s t i n g of d o l l a r proceeds f e d by other i n v e s t o r s s e l l i n g U.S. s e c u r i t i e s . Likewise, they could purchase s e c u r i t i e s i n o t h e r p a r t s of the world, Continental s e c u r i t i e s i n p a r t i c u l a r , using f o r e i g n exchange acquired only from the s a l e of m soft M currency s e c u r i t i e s by o t h e r / i n v e s t o r s . For some time, the demand f o r f o r e i g n currencies f o r i n v e s t i n g i n the Common Market c o u n t r i e s has been r e l a t i v e l y stronger i n r e l a t i o n t o the a v a i l a b l e supply of " s o f t d o l l a r s " than has been the demand f o r d o l l a r s t o i n v e s t i n the U.S. i n r e l a t i o n t o the a v a i l a b l e supply of "hard d o l l a r s " * T h e r e f o r e , t h e discount on s t e r l i n g f o r purchases of f o r e i g n exchange from the " s o f t d o l l a r " pool has been g r e a t e r than t h a t f o r purchases i n the "hard d o l l a r " p o o l . How, with the two investment d o l l a r pools combined, the proceeds of s a l e s of d o l l a r s e c u r i t i e s can be used f o r purchasing the s e c u r i t i e s of Continental countries if i n v e s t o r s so d e s i r e . At the same time t h a t these f o r e i g n currency pools were combined, the Government announced t h a t these funds - may now be used by companies t o f i n a n c e d i r e c t investment abroad. This i s a r e l a x a t i o n of the c o n t r o l t h a t was placed on d i r e c t investment l a s t Julys t h a t funds may be t r a n s f e r r e d o u t s i d e the s t e r l i n g area only when t h e investment would bring s h o r t - r u n " c l e a r and commensurate b e n e f i t s t o t h e United Kingdom export earnings and t o the balance HOT FOR PUBLICATION NOT FOR PUBLICATION - 7 - of payments." Firms not meeting t h i s requirement can now make use of t h e "investment d o l l a r " p o o l . The use of t h i s pool u n t i l now had been t i e d e x c l u s i v e l y to p o r t f o l i o investments The r a t e s f o r these investment d o l l a r s ( i n U.S. cents per pound) have been as followss Jan. Feb. Mar. Apr. 25 22 29 26 "Hard" "Soft" 281,15 281.23 280.18 279-39 272,8U 273.8k 277.92 276.89 May 3 10 17 "Hard" "Soft" 279.01 278.78 27U.01 275.35 268.91 266.03 - — — — ' 2k ' 31 272.17 267.30 Bullion market. The gold market became i n c r e a s i n g l y a c t i v e towards the end of May and during the f i r s t h a l f of June® Gold purchases increased i n response t o bleak r e p o r t s from the world 8 s stock exchanges. The p r i c e s a t t h e London f i x i n g during A p r i l s May and t h e f i r s t h a l f of June were ( i n U.S. d o l l a r s per ounce): Apr. 6 13 19 27 35.07U 35.081 35,075 35.071 May U 11 18 25 35-076 35.079 35.075 35.091 June 1 8 15 35.085 35.099 35.107 The New York Times reported (June 7 s 1962 s p . U7) t h a t when market demand f o r gold was very low i n the months proceeding t h e r e c e n t f l u r r y of gold purchases s t h e r e was considerable buying of gold f o r r e s e r v e s , "probably through the new gold pool formed by United S t a t e s 5 United Kingdom* and Continental c e n t r a l banks". The F i n a n c i a l Times r e p o r t e d t h a t t h e r e was a good demand f o r gold by p r i v a t e buyers from Continental c o u n t r i e s f o r s h o r t periods both a t t h e end of May and the middle of June. Europe and B r i t i s h Commonwealth S e c t i o n . II. Chart Chart Chart Chart Chart Chart Chart Chart Nine Charts on F i n a n c i a l Markets Abroad I n t e r e s t Arbitrage 2 United States/Canada I n t e r e s t A r b i t r a g e s New York/London I n t e r e s t Arbitrage f o r German Commercial Banks I n t e r e s t A r b i t r a g e , Frankfurt/London Short-term I n t e r e s t Rates Long-term Bond Yields I n d u s t r i a l Stock Indices Spot Exchange Rates - - Major Currencies Against U.S. Dollar Chart 9 = 3-month Forward Exchange Rates 1 2 3 L 5 6 7 8 - - NOT FOR PUBLICATION United Kingdom: Treasury Bill Yields and Exchange Rates London d e p o s i t r a t e s 3-mo. Treasury b i l l a r b i t r a g e c a l c u l a t i o n IKK. U.S. D i f f e r 3-mo. I n favor &/ ence pounds/ U.K. b i l l Spot pound (U.S. cents) 1961 - High Low 6.71 U.17 2.71 2.16 I.L5 1.88 -0.79 -Uo 36 1*13 -2.12 281.62 278.17 lj.00 3.13 Mar. 23 30 6 13 20 27 May . h 11 18 25 June 1 8 15 1.38 U.3U L.28 W5 U.19 U.03 3,97 3.88 3.78 3.72 3.69 3.69 3.66 2.70 2.75 2.70 2.71 2.73 2.7U 2.73 2.63 2.68 2.69 2.69 2.65 2.71 1.66 1.59 1.58 1,51 1.U6 1.29 1.2U 1.25 1.10 1.03 1.00 1.05 0.95 -2.08 -1.93 -1.86 -1.92 -1.71 —1.U8 =•±<>32 -1.0? -1.04 -0.91 -1.01 -1.05 —OoUO -0.31 -0.28 -0.WL ^).25 -0.19 -0.08 +0.18 +0.06 +0.12 -0.01 281.32 281.39 281.38 281,52 281.45 281.25 281.28 281.21 281.29 281.15 280.97 280.80 280.5)7 3.63 3.69 3.63 3.50 3.50 3.50 3.56 3.63 3.56 3.69 3.72 3.69 3.66 Apr. -i-O 0 08 —O087 U.S. local dollar (3-ao.) authority (3-®o.) 7.50 6.00 ' 5.69 5.69 5.50 5.34 5.31 5.00 U.9U ii.81 U.70 4.56 It.56 U.56 it.lA a__/ Spread between spot and 3-month forward r a t a i n per cent per annum, ' D i s c o u n t equals (=), : United Kingdom: Selected Capital Market Yields I96U 1961 - High Low Mar. 22 29 5 12 19 26 May 3 10 17 Apr. 2k June 31 7 1U U.K. Government bond yields 2-1/2% 3-1/2% 1965-75 2008-12 War Loan Consols 6.65 5.15 6.68 6.Q2 5.95 5.95 5.08 5.18 5.27 5.25 5.07 k.95 5.02 U.95 U.81i U081 U.76 U.55 -U.5U 6.2k 6.25 6.25 6.24 6.22 6.22 6.23 6.25 6.22 6.22 6.26 6.28 6.25 6.25 6.30 6.30 6.30 6.25 6.20 6.20 6.20 6.20 6.15 6.20 6.25 6.20 6.33 6.38 6.38 6.1I3 6.31 6.27 6.25 6.30 6.30 6.28 6.33 6.37 6.32 Share y^d Yield 6.78 5.70 5.L8 k.22 1.90 0.86 365.3 287.7 60I6 6.23 5.25 5.37 0.86 0.91 295.2 292.6 301.5 300.9 298.6 305.1 305.5 297.5 296.5 281).. 3 273.8 267.li 6.22 6.26 6.15 6.13 6.13 6.20 6.15 6.1k 6.19 6.23 6.17 5.21 5.22 5o25 5.15 5.17 5.31 5.28 5.50 5.71 5.85 5.95 a / F i n a n c i a l Times. between yield on 2-1/2 per cent Consols and share yield. 5/ Difference Share prices j L loOl 1.0U 0.90 0.98 0.96 0.91 0.87 0.6U 0.U8 0.38 0.22 262.9 INTEREST ARBITRAGE, iThuridoy figures THREE-MONTH UNITED TREASURY ST A TES / v v v . 7 RATE DIFFERENTIAL A N D CA N A DA BILL R A T E S FORWAR0 v ^ . CANADIAN DOLLAR EXCHANGE COVER S P R E A D IN F A V O R O f C A N A D A + A / RATE DIFFERENTIAL W I T H . FORWARD NET I N C E N T I V E IN F A V O R OF C A N A D A + D INTEREST ARBITRAGE, NEW YORK/LONDON Friday figures 3-MONTH Per cent per a n n u TREASURY BILL 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 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 1959 1960 1961 1962 INTEREST Friday ARBITRAGE FOR GERMAN COMMERCIAL BANKS Figures 3-MONTH Per TREASURY . EURO-DOLLAR ^.GERMAN BILLS, DEPOSIT INTERIANK INTERBANK LENDING RATE RATES LOAN RATE |V GERMAN RATE DIFFERENTIAL AND AND A. TREASURY R I U S ^ FORWARD DEUTSCHE MARK / ! A' RATE i i DIFFERENTIAL r WITH n FORWARD IN F A V O R / INTERBANK t " r COVER OF F R A N K F U R T ( + )' LOAN RATE I960 .Note; i EXCHANGE 19 61 Special forward rate available to German commercial bo ik$ 1962 cent per INTEREST ARBITRAGE, FRANKFURT/ LONDON Friday H cures ~ 3 - M O NTH TREASURY BILLS A N D I N T E R B A N K L E N D I N G 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 v — / — V r GERMAN TREASURY BILLS Vz2lV\ R A T E DIF F E R E NT 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 ^ NET ' I N C E N T I V E ' O F U N I T E D K I N G D O M O V E R : """ GERMAN TREASURY BILLS I960 "19 61 SHORT-TERM INTEREST RATES * ' iUKO-DOllAR - l O N D O N L V I \ CANADA 1959 ^ 3-month Ireoivry bill rol«« lor all counirm. e.cepl Japan (3 month mic lank Hrpotn role) and Switzerland (3 month depont rate) ij" 3-month role lor U S dollar depouli in London LONG-TERM s BOND YIELDS •v h GERMANY M 1 1 ! 1 1 1 1 1 I I 1 1 1 1 1 II Li. J II 1 II II 1 1 I II 1 1 L-LL-L. 1 1 1 II II W J U - J.U_LL_UA>J INDUSTRIAL STOCK INDICES* 200! 50| »?. 1 JAPAN 1962 I^ 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 j l l . S . DOLLAR P 9'i 3-MONTH FORWARD E X C H A N G E RATES i A G A I N ST U. S. D O L L A R L GERMAN MARK : SWISS f r a n T ' - v , % V X / 'OUND STERl DISCOUNT-) . - >S_J PREMIUM+ 1 1 1 ^AGAINST 1 POUND 1 i i \ 1 i i i . '• 1 , I STERLING - L O N D O N v\ U.S. DOLLAR AGAINST POUND STERL N G - LONDON FRENCH FRANC A BELGIAN FRANC __ I ,, I I i i i i
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