The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
• OARD OF S O V I K N O M HO'63 \ June 8, 1962 \ ^CAPITAL MARKET DEVELOPMENTS ABROAD 7 ^ ^ I. II. I* Germany: sr- Germany Nine Charts on Financial Markets Abroad Money and Capital Markets during April A gradual tightening of c r e d i t conditions occurred i n German f i n a n c i a l markets during April and May. Short money r a t e s i n the money market eased somewhat from the exceedingly high l e v e l s produced i n l a t e March as a r e s u l t of the seasonal flow of t a x r e c e i p t s t o the Treasury but remained w e l l above the l e v e l s prevailing i n e a r l y 1962. Compared with the temporary March peak of about U per cent, day-to-day money f l u c t u a t e d between 2=1A and 3-1/8 per cent and the three-month interbank loan rate between 3 and 3-1/8 per cent i n A p r i l . The three-month loan rate was maintained but the day-to-day money rate declined further i n l a t e May. The gradual pressures on c r e d i t supplies r e f l e c t e d reduced l i q u i d i t y i n f i n a n c i a l markets, e s p e c i a l l y the lower l e v e l of the "free" reserves of the banking system. The German a u t h o r i t i e s have a l s o been anxious t o bring up short-term r a t e s to encourage the banks to hold t h e i r shortest-term l i q u i d a s s e t s within the country and not in foreign f i n a n c i a l centers„ To t h i s end 9 the Bundesbank on April 13 r a i s e d i t s s e l l i n g rate f o r three-month Treasury b i l l s from 2 t o 2 - 1 / 8 per c e n t . In a d d i t i o n , the a u t h o r i t i e s have moved i n the d i r e c t i o n of reducing c r e d i t a v a i l a b i l i t i e s because of domestic demand pressures and e s p e c i a l l y the r i s i n g trends i n wages and prices« Minister of Economics Erhard has been p a r t i c u l a r l y outspoken about h i s concern over trends i n wages and c o s t s . F i n a l l y , the Treasury's cash p o s i t i o n has been more favorable than had been expected. During April the bond market s h i f t e d i n d i r e c t i o n and y i e l d s moved from 5 - 3 A per cent toward a 6 per cent l e v e l i n May, The turn-around i n bond p r i c e s i n l a t e April brpught to an end the steady r i s e i n p r i c e s over the preceding s i x months. A heavy s l a t e of new i s s u e s and the reduced l i q u i d i t y p o s i t i o n of the banks contributed to t h i s reversal» In place of a 5 - 1 / 2 per cent coupon, the a u t h o r i t i e s decided to put a 5 - 3 A per cent coupon on a DM200 m i l l i o n issue of the Reconstruction Loan Corporation (a prime market name) a f t e r the. market trend turned. This o f f e r i n g made on May 10 was quickly oversubscribed; but a DM100 m i l l i o n o f f e r i n g of the Equalization of Burdens Bank 12 days l a t e r with a 5 - 3 A per cent coupon was not f u l l y subscribed® Because of the s i t u a t i o n in the bond market, there i s some uncertainty about the terms f o r the f i r s t DM250 m i l l i o n tranche of a 1962 loan by the Federal Government which had been expected for the end of June, and i s now scheduled for the e a r l y part of July. NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS NOT FOR PUBLICATION - 2 - The German stock market was weak but f a i r l y calm during April and e a r l y May0 Stock prices f e l l about 3 per cent during the f i r s t week i n April and5 a f t e r remaining Tirm during the r e s t of the month# dropped again by about 5 per cent on May 9 and 10„ On May 29 s a f t e r New York p r i c e s had fallen,, German stock p r i c e s f e l l by ? per cent to the lowest l e v e l since 1959s some 42 per cent below the August I960 a l l - t i m e higho But the index recovered sharply by 11 per cent on May 30 and June l o The German trade surplus i n April was almost as, large as the unexpectedly large March f i g u r e , The March"April average was about $ l £ 0 m i l l i o n per month or an annual rate of $1„8 b i l l i o n o Both exports and imports were l a r g e r s on a s e a s o n a l l y adjusted b a s i s y i n April than i n Marche On f o r e i g n exchange marksts s the D-mark remained c l o s e to p a r i t y against the U»S0 dollar* Money market» During the e a r l y part of April the money market eased and money r a t e s declined from %he abnormal l e v e l s reached i n l a t e March when tax payments produced exceedingly t i g h t credit conditions» (See Charts 3p U* and £.,) The increase of some DM56 m i l l i o n i n commercial bank borrowings from the Bundesbank i n April r e f l e c t e d an underlying tightening tendency i n German c r e d i t markets. Recent quotations f o r interbank short-term money i n Germany (in per cent per annum) have been? Day-to-day April 1 8 16 21 - 7 - IS = 23 - 30 2~3/4 2=1/4 2^1/4 2=3/# May 1 8 16 2k = - 2-=3/4 a 3=1/4 2=1/8 -= 2 <=3/4 2=1/8 =• 2=1/2 1 - 7 / 8 = 2=1/4 7 15 23 31 «=• 3=^-/8 <= 2-3/u .= 2=1/2 " 3-1/4 3°mont.h loans 3 = 3=1/8 3-1/8 3 = 3=l/8 3 a 3=1/8 3=1/8 On April 13 the Bundesbank raised i t s s e l l i n g rate f o r three-month Treasury b i l l s from 2 per cent to 2=1/6 per cent to encourage the banks to keep their primary l i q u i d a s s e t s i n Germany and not i n f o r e i g n centers« During April and Mays the Bundesbank's p r e f e r e n t i a l r a t e of 0„50 per cent f o r forward DM-dollar swaps of maturities up to two months (available only t o commercial banks) was s u b s t a n t i a l l y above the market rate for three-months forward contracts (see t a b l e 9 p„7 )». This p o l i c y was a l s o designed to encourage the banks t o keep t h e i r shortest-term a s s e t s a t home0 NOT FOR PUBLICATION; NOT FOR PUBLICATION =. 3 Bond market «T The six-month r i s e i n German bond p r i c e s came to an end i n e a r l y April and a reverse market trend was evident l a t e i n the month as p r i c e s declined« (See Chart 6„) In t h i s adjustments y i e l d s moved to a new l e v e l s e s p e c i a l l y for new issueSo Hopes that the Reconstruction Loan Corporation (a prime market name) might be able to o f f e r i t s DM200 m i l l i o n i s s u e a t 5=1/2 per cent coupon to break through to a new l e v e l were disappointed 0 The bonds were o f f e r e d on May 10 a t a 5~3/U per cent coupon a t par and were promptly oversubscribed* However5 a DHL00 m i l l i o n loan of the Equalization of Burdens Bank on the same terms on May 22 was not f u l l y taken up„ On outstanding i s s u e s , the y i e l d on the 5 - 1 / 2 per cent Railway bond (1958=83) rose from 5.55 per cent on April 13 to 5=6? per cent on May h and 5=77 per cent on May 25» Perhaps as an i n d i c a t i o n of o f f i c i a l concern about bond trends 0 the German press reported that the Bundesbank intervened to support the bond market from time to time i n the l a t t e r part of May0 Several f a c t o r s helped to bring the turn-about i n y i e l d s i n the bond markete Heavy gross placements of bond o f f e r i n g s i n recent months and the s u b s t a n t i a l s l a t e of new i s s u e s i n prospect were important f a c t o r s 0 In addition^ the unexpected t i g h t n e s s of the money market i n March and the more gradual pressures on the l i q u i d i t y p o s i t i o n s of the commercial banks i n April and May contributed to the r e v e r s a l s Furthermore 9 i n s t i t u t i o n a l considerations had s i g n i f i c a n t e f f e c t s , , e s p e c i a l l y the apparently widely<=held view i n German f i n a n c i a l c i r c l e s that a 5 - 1 / 2 per cent coupon i s a low long-term i n t e r e s t rate f o r t h a t country. This view, reportedly, i s held by both lenders and borrowers and helped t o produce market r e s i s t a n c e to further d e c l i n e s as market y i e l d s began t o approach a 5 - 1 / 2 per cent l e v e l i n e a r l y April„ On May 20 s Finance Minister Starke announced that the f i r s t DM250 t o 300 m i l l i o n tranche of the 1962 Federal loan would be issued a t the end of June "with such good conditions that the Federal Government would not experience bankruptcy," The market interpreted t h i s statement to mean t h a t the loan would have a 6 per cent coupon but a l a t e r press report s t a t e d that the Federal Capital Market Committee had recommended that i n d u s t r i a l borrowers r e t a i n a 5 - 3 A per cent coupon and reduce t h e i r i s s u e prices» Some DM250 m i l l i o n of i n d u s t r i a l i s s u e s are reportedly planned f o r l a t e May and e a r l y Juneo In April gross placings of s e c u r i t i e s i n Germany were about DM200 m i l l i o n higher than i n Marchs l a r g e l y because of the DM260 m i l l i o n loan of the Federal Railways and a larger volume of new i s s u e s o f sharesj placements of Mortgage and communal bonds declined„ NOT FOR PUBLICATION ^ NOT FOR PUBLICATION - U - S e c u r i t y g r o s s placements (nominal v a l u e s i n m i l l i o n s of DM$ monthly or monthly average) i n r e c e n t months were as f o l l o w s s 1961 I "Occasional" borrowerss Special credit i n s t i t u t i o n s Industrial Public a u t h o r i t i e s Foreign Total Mortgage and communal bonds 2 Mortgage Communal Total Shares Total s e c u r i t i e s a / a/ Ihclxxles M II 101 hO UU5 8k 17 103 — H L US <=>«=> 86 U l j 5 IV. I Feb. 69 50 80 U9 112 316 33 60 150 530 100 586 ~20k 293 2U6 302 229 288 181 331 180 53 9 531 L6? 1962 Mar« h 75 8 Apr. U6 e»«> 260 — ~Eo ~87 306 387 287 280 30ii 358 2U8 256 181 511 67k 58U 606 kbO 106 135 5U 225 1,333 1,610 786 995 "l99 22 9 1U1 263 98 I 9 35U 885 876 82U H o Kassenobligationen „" Stock markets The German stock market was weak but f a i r l y calm during A p r i l and e a r l y May, (See Chart 7 ° ) Stock p r i c e s f e l l about 3 per c e n t the f i r s t week i n A p r i l and, a f t e r remaining f i r m during the r e s t of the month s f e l l about 5 per c e n t on May 9 and 1 0 , T h e r e a f t e r during May, p r i c e s f e l l c o n t i n u o u s l y and rapidly5 n o t u n t i l May 30 did p r i c e s r i s e by as much as one point* On May 29* a f t e r p r i c e s had f a l l e n i n New York; German s t o c k p r i c e s f e l l by 7 per cent t o the l o w e s t l e v e l s i n c e 1959* some 1*2 per cent below the a l l - t i m e high i n August i 9 6 0 , On May 30 and June 1, s t o c k p r i c e s recovered s h a r p l y by 11 per c e n t . Press r e p o r t s , i n d i c a t e t h a t s e c u r i t y s a l e s by small i n v e s t o r s were a c c e l e r a t e d i n May when s t o c k s had t o be s a c r i f i c e d t o cover c r e d i t or margin buying because the value of s e c u r i t i e s used as c o l l a t e r a l f o r the l o a n s declined<, Mr, B l e s s i n g , P r e s i d e n t of the Bundesbank* expressed r e g r e t s t h a t , i n s p i t e of Bundesbank warnings, p r i v a t e banks had been extending c r e d i t f o r such t r a n s a c t i o n s » The p r e s s a l s o reported t h a t t h e Small Shareholders 0 P r o t e c t i v e A s s o c i a t i o n had requested t h a t Chancellor Adenaeur c l o s e the Stock Exchanges f o r a t l e a s t a month because l a r g e corporations a l l e g e d l y had been manipulating t h e market. How t h i s manipulation t o o k p l a c e was not made c l e a r . NOT FOR PUBLICATION - 5 = NOT FCR FUBLICATIOW D a i l y f l u c t u a t i o n i n stock: p r i c e s as measured by the Frankfurter Allgemeine index (December 31«, 1958 equals 100) weres 31 31 31 17 29 223*80 203038 219,36 229.72 220.92 Jan. 31 Feb, 2? Mar0 7 20 23 26 27 213.88 211.90 217.30 212.33 207.2$ 201.95 20L.91 July Augo Oct, Nov. Dec. 1962s Apr 0 , 3 jLA. 18 25 May 2 9 16 23 25 29 30 June x 210.12 200.9b 202.66 203.L8 201.07 196.61 185,85 176.83 169.85 l5b.lb ' 171.09 175.07 Fqreign trade o Both imports and exports, r o s e i n A p r i l on a s e a s o n a l l y a d j u s t e d b a s i s 9 r e s u l t i n g i n a trade surplus of SlL.0 m i l l i o n 0 The new high a t t a i n e d by German e x p o r t s t h i s spring i s a t t r i b u t e d t o the l a r g e order backlogs f o r machinery b u i l t up some time a g o , a s w e l l a s to"a recent r i s e i n f o r e i g n demand f o r s t e e l and automobiles 0 Imports i n March and A p r i l were 15 per c e n t above the year=ago l e v e l 0 The German trade surplus f o r the two months averaged $156 m i l l i o n i n 19o2 $ compared w i t h $192 m i l l i o n f o r the comparable period, of 1961„ German Foreign Trade ( s e a s o n a l l y adjusted;; monthly or monthly averages s i n m i l l i o n s U 0 S 0 d o l l a r s ) Calendar year I960 1961 1961 T 2 C T ~~"~TiT" " 1962 Feb. too IV J L .. 1,060 1,058 1,103 1,08b ApFo Exports, 951 1,052 Imports 8U8 917 852 936 911 960 99k 1,097 970 1,025 Surplus 103 135 195 lUl 151 98 109 = 13 168 ibo 1,0b? 1,07? 1 , 1 3 8 -1,165 Foreign exchange r e s e r v e s 0 Q m s s gold and f o r e i g n exchange r e s e r v e s of the Bundesbank d e c l i n e d i n A p r i l fey $5'6 m i l l i o n s compared with a r i s e of $232 m i l l i o n i n March. Commercial bank holding of short-term l i q u i d a s s e t s abroad d e c l i n e d during t h e month by $36 m i l l i o n , bringing the t o t a l r e s e r v e l o s s t o $92 m i l l i o n i n A p r i l . The e f f e c t on German r e s e r v e s of B r i t i s h purchases of DM i n A p r i l f o r repayment t o the I n t e r n a t i o n a l Monetary Fund was v i r t u a l l y o f f s e t by a $33 m i l l i o n i n d e m n i f i c a t i o n payment by Germany t o France. In March the g r o s s s h o r t - t e r m l i q u i d a s s e t s held abroad by German commercial banks d e c l i n e d by $20? m i l l i o n s s o • t h a t the t o t a l r e s e r v e g a i n by Germany f o r the month amounted t o $25 m i l l i o n <, compared with "$26 m i l l i o n 111 February and $8? m i l l i o n i n January. NOT FOR PUBLICATION NOT FOR PUBLICATION In the f i r s t three weeks of May <, gross gold and f o r e i g n exchange r e s e r v e s of the Bundesbank rose $U3 m i l l i o n t o $ 6 9 6 6 l m i l l i o n . Monthly or q u a r t e r l y changes i n German r e s e r v e s of gold and f o r e i g n exchange i n 1961 and 1962 ( i n m i l l i o n s of U 0 S 0 d o l l a r s ) were as f o l l o w s g 1961 III I II Bundesbank +300 ,262 Comm., banks a / +U79 +WL -L2? +799 b / . +122 -3^9 Total -570 1962 Febo Mar* IV I + 68 =163 & 36 +232 0 56 +601 = 10 =207 " 36 +138 + 26 + 22 - 92 . a / Balances with f o r e i g n banks and money market investments abroad, b / A f t e r s p e c i a l debt prepayments of # 7 6 m i l l i o n to the United S t a t e s and t h e United Kingdom,, The t o t a l would be a r e s e r v e gain of $898 m i l l i o n <> i f adjusted f o r t h e s e t r a n s a c t i o n s » Foreign exchangee The D-mark weakened^-against the d o l l a r i n Aprils and remained c l o s e to par with 'the UoS<, d o l l a r i n the f i r s t three weeks of May® (See Table 8 . ) During, the period of turmoil on world s t c e k exehanges s however» the mark strengthened a g a i n s t the d o l l a r somewhat» Friday quotations f o r the spot D-mark during the reporting period were ( i n U0SQ @ents)s Mar. 2 9 16 23 30 2$,01$ 25.00^ 26,006 25.0L5 25.039 April 6 13 20 2? 250020 25.015 25.005 2W98 May k 11 18 25 June 1 25o010 25.003 25.006 25.029 25.025 Europe and B r i t i s h Commonwealth S e c t i o n c 11= Nine Charts _qr F i n a n e i a l Markets Abroad Chart Chart Chart Chart Chart Chart Chart Chart <= I n t e r e s t Arbitrage$ United States/Canada ~ I n t e r e s t Arbitrage f New York/London - I n t e r e s t Arbitrage f o r German Commercial Banks = Interest. Arbitrage <- Frankfurt/London ° Short-term Bond Y i e l d s - Long =» term. Bend Y i e l d s = I n d u s t r i a l Stock I n d i s e s - Spot, Exchange Rates M*. - or Currencies Against U0S0 D o l l a r Chart 9 - 3-month Forward Exchange Rates 1 2 3 k 5 6 7 8 NOT FOR PUBLICATION <=> 7 Germanys S e l e c t e d Money Market Y i e l d s and Exchange Rates (per c e n t per annum) 3-mo. Eurod o l l a r deposits London 196l-0ct. 6 Nov. 10 Dec. 22 1962-Jano Feb. Mar. Apr, May 5 16 30 6 13 19 27 h 11 18 25 a 3-mo 0 i n t e r bank l o a n s Frankfurt 3.25 3-31 3.88 3.# 3.31 3.6? 3.63 3.# 3.# "3.20 3.# 3.63 3.56 3.81 Spread i n favor London 3-mo 0 forward Marks v s . US $ Comm. bank£/ Market U0K0 Ger. U.S. =0o60 . -0.73 °lo30 6.00 5.31 5/28 2.13 2.00 2.00 2.31 2.U7 2.60 1.88 - 0 . 9 5 ' U-3U •=>0 062 5oliU ^ 1 . 8 8 ^0.35 Uo3h "2.00 °0 o I4.O L.28- 2.00 -0 0 38 k . 2 5 2.13 -0.L0 Uoi9 2.13 -0,32 U0O3 2.13 -0.32 2.13 3.97 -O0U2 3.88 2.13 2.13 -0.25 3.72 2.13 3.69 -0.35 2.7k 2.83 2.75 2.70 U'.oo 3.63 3.72 -0.75 -0.32 +0ol3 -0.25 -0.25 3.00 2.75 2.63 3.00 2 08I 2.81 2.91 2,9k . 2.88 2.88 2.88 +0.50 +0.56 +I0O6 +O063 +0.69 +0.69 +0.56 +0=62 +0.75 +0»68 +0.93 °0.25 -0.50 -0.25 •?0o 25 -0.25 -0.25 -0.25 -0.25 -0.25 -0.25 -0.25 3-mOo Treaso b i l l s 2o7h 2.73 2.71 2.73 2.63 2.68 2,69 a / Bundesbank s p e c i a l r a t e f a r 2 t o 6 month d e p o s i t s <> Germany: Comm. bank , loans£/ 1959-March Dec. 7.25 8.50 1960-March Dec. S e l e c t e d l o a n , Deposit and S e c u r i t y Rates (per c e n t per annum) 6 - 1 2 mo. d e p o s i t s Savings Time Bond y i e l d s 5:1/2% Public Railway author1958-83 i t i e s Share yields Yield gap 3.25 3.25 2.50 3.25 5-U 5.9 5-6 6.2 3.22 2.19 2.U U-0 8.50 8.50 3.75 U.50 3.25 3.50 6.3 5.9 60U 6.2 2.27 1,96 hoi 1961-March June Sept. Dec. 8.00 7.50 7.50 -7.50 U-25 U.00 3.50 3.5o 3.25 2.75 2.75 2.75 5-8 5.9 5.6 6.0 6.0 2.11 2.19 2.63 2-U9 3.7 3.L 1962-Jan. Feb. Mar. April May 7-50 7.50 7.50 7-50 3-50 3-50 3-50 3.50 2.75 2.75 2.75 2.75 * a / Approved c r e d i t s on current account» 5»5 5.9 6.0 5-8 5-7 5-6 5-6 5.7 5-9 5.7 5-6 . 2.57 2.61 2.65 U.2 3 oh 3.5 3-3 3-1 3-0 % INTEREST Thursday ARBITRAGE, THREE-MONTH RATE UNITED S T A T E S / C A N A D A figures TREASURY DIFFERENTIAL AND BILL FATES FORWARD Per <e.nl p e r CANADIAN DOLLAR S P R E A D IN F A V O R O F C A N A D A + RATE DIFFERENTIAL WITH FORWARD EXCHANGE N I T I N C E N T I V E IN F A V O R 0 ? COVER CANADA + annum INTEREST Friday ARBITRAGE, Y O R K / L O N D O N figures i 3-MONTH RATE i r' r TREASURY DIFFERENTIAL "3-MONTH RATE NEW ' i • RATES AND FORWARD DIFFERENTIAL FORWARD ; BILL j STERLING WITH EXCHANGE COVER J J_ . . 1 1 1 1959 1960 1961 1962 INTEREST ARBITRAGE 3-MONTH , TREASURY EURO-DOLLAR RATE -OR BILLS, DEPOSIT DIFFERENTIAL GERMAN COMMERCIAL INTERBANK BANKS LENDING RATE AND RATES AND FORWARD DEUTSCHE MARK •\ RATE DIFFERENTIAL W = TH FORWARD- EXCHANGE IN F A V O R O f r~\ INTERBANK COVER F R A N K F U R T ? ( + J. LOAN RATF p . - u - o - H n T^vr- I960 Note: 1961 Special forward role available to German commercial ban** 19 62" I N T E R E S T Friday ARBITRAGE, F R A N K F U R T / L O N D O N figures "3-MONTH Per c e n t p e r a n n TREASURY INTERBANK LENDING BILLS AND RATES \ A G5RWA7J I N T E R B A N K RATE D I F F E R E N T I A L A N D | —3^MONTH FORWARD STERLING RATE DIFFERENTIAL WJTH FORWARD EXCHANGE COVER /V SHORT-TERM INTEREST RATES * V it— ' t«V/ i 3 m o n t h Ireoiury bill r o l e s lor all countries except lupun (j monili mit-ibunt drpont rnte) nnd Switzerland (j month d e p o r t r a l e ) 3 month r a l e (or U S dollar d e p o s i t s m tondon LONG-TERM BOND YIELDS 1962 INDUSTRIAL STOCK INDICES* 19 58=100 Mole Japan Index ol oil Hoc k l Iraded on Tokyo ojchtmcje. SPOT EXCHANGE FRENCH RATES FRANC ' - MAJOR CURRENCIES AGAINST U.S. DOLLAR 3-MONTH AGAINST FORWARD U. S. EXCHANGE ' DOLLARS RATES [ ' T ! GERMAN MARK V PREMIUM+ i / SWISS FRANC V X / . - X / 1 (- POUND STERLING \ DISCOUNT1.. AGAINST POUND 1 ... 1 J STERLING - PREMIUM + L 1 I LONDON GERMAN MARK 1 1 j | II V\ AGAINST POUND STERLING - LONDON 1 .. i i i.. i L-1 i i i
@FedFRASER