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DIVISION OF I N T E R N A T I O N A L F I N A N C E
.
-
BOARD OF GOVERNORS
-
OF THE
FEDERAL RESERVE SYSTEM
H. 13
No. 238
March 9, 1966.
CAPITAL MARKET DEVELOPMENTS ABROAD
I.
II.
III.
I.
Euro-dollar Markets
Ten Charts on Financial Markets Abroad
Latest Figures Plotted in H.13 Chart Series, 1966
Euro-dollar Markets for Deposits and Long-term Bonds, January-February 1966
Yields on U.S. dollar-denominated assets in European financial
centers advanced steadily in January and February, contrary to the usual
seasonal pattern.
Tightening monetary conditions in the United States and
continued borrowing in Europe by U.S. firms were primarily responsible for
the increased yields.
In the short-term deposit market„ yields on most
maturities of deposits had risen by the end of February to a level about 100
basis points higher than they had been six months earlier.
(See Table 1.)
In the long-term bond market, yields on representive dollar bonds traded
in London ranged between 6.1jgRd 6.4 per cent in February compared with
5.5 to 5.9 in the summer of r965.
(See Table 1 .)
Table 1.
Euro-dollar Deposit Rates (London): Changes
Between Selected Dates, September 1965-February 1966
(per cent per annum)
Rate
Sept. 3
1965
Call
(2-day)
Oct.
15
Changes from previous date
February
Nov.
Dec.
Jan.
19
10
74
25
4.00
+.25
.00
+
.25
.00
+
. 37 +.13
+. 25
+. 25
Rate
Feb. 25
1966
0
5.00
7-day
4. 13
+.25
+.24
0
5.12
30-day
4. 19
+.43
-.12
+1 . 12
-.50
+.07
+.25
5.44
90-day
4.38
+. 68
-.06
+
. 56
-.44
+,26
+.06
5.44
180-day
4. 75
+.37
-.06
+
.56
-.37
+. 25
0
5.50
Source:
Federal Reserve Bank of New York.
OFFICIAL USE ONLY
(Decontrolled after six months)
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2
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In the Euro-dollar deposit market, bid rates in London in February
on the very short-dated deposits (call and 7-day funds) rose to new all-time
highs. Market reports indicate that bidding by branches of U.S. banks for
dollar funds contributed materially to the demand pressures in this sector of
the market.
Bid rates on these funds were about 50 basis points higher in
early February than they had been at year-end*
(See Table 1 and Chart 2.)
Rates for longer-term deposits 3 however, rose somewhat less than for the
shorter maturities.
The increases in Euro-dollar deposit rates were generally in line
with rate advances in New York, and the spread between New York certificate
of deposit and London dollar deposit rates has remained relatively stable
since the beginning of the year.
(See Chart 1.) For 90-day funds, this
differential has remained largely between 32 and 36 basis points.
(See
Table 2.)
Table 2,
Euro-dollar Deposit Rates vs. New York
Certificates of Deposit
(per cent per annum)
1965
Oct.
6
Dec.
l_
Jan.
5_
4.44
4. 35
4.88
4.45
5. 25
4.49
5.18
4.86
.09
.43
. 76
4.88
4.44
5.06
4.52
.44
.54
Sept =
15
Euro-dollars over CD's
90-day Euro-$ Deposit
90-day CD
Difference
180-day Euro-$ Deposit
180-day CD
Difference
Source:
5.25
4.57
. 68
1966
February
2
23
Mar.
_2
5. 25
5. 11
5. 31
4c 95
5. 38
5.05
.36
.33
. 14
5.25
4.92
5.50
5.08
5. 50
5. 18
5.44
5, 19
.33
.42
. 32
. 25
. 32
Federal Reserve Bank of New York.
At the moment, the advancing level of rates may not be attracting
new funds from various sources into the Euro-dollar deposit market as high
rates have done in the past.
Italian banks are no longer acting as major
suppliers to the market as they were during the late summer and fall months.
On the demand side, tightening monetary conditions in both the United States
and Canada are thought to be attracting dollar funds from European and other
foreign holders.
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In the Euro-dollar bond market, the heavy offerings of long-term
issues which developed in the latter part of 1965 have continued.
In
January and February, new issues averaged about $100 million a month.
U.S.
firms were the heaviest borrowers, accounting for about 63 per cent of the
activity in these two months.
European press reports suggest that American
firms may continue to dominate this market for the remainder of this year.
However, increased signs of strain are appearing in the long-term
Euro-dollar bond market.
On non-convertible offerings, coupon rates crept up
on most new issues between 25 and 50 basis points in the two months under
review.
In addition, offering prices had to be substantially pared to
attract buyers.
Several borrowers either reduced the size of announced
offerings or decided to postpone them indefinitely.
In the London secondary market, prices on outstanding issues
reflected this pinch on dollar funds.
At the end of February, prices on most
of the non-convertible dollar bonds were at all-time lows.
(See Table 12.)
London Euro-dollar deposit rates up sharply in January-February
Bid rates for U.S. dollar deposits in overseas financial markets
advanced sharply in January and February
and were at new all-time highs for
very short-term maturities.
Heavy bidding by foreign branches of U.S. banks
for short-term funds have contributed materially to current demand pressures.
Between December 31 and February 4 bid rates in London for call and 7-day
funds rose 50 basis points; they have since eased slightly.
(See Table 1
and Chart 2.)
For longer-term deposits, rates recovered sharply from a late
December slump.
Between December 31 and February 25, 90-day and 180-day
deposit rates rose from 5.25 per cent to around 5.50 per cent.
(See Table 1
and Chart 2.)
New York-Euro-doliar differential stable.
The spread between
New York and London deposit rates has remained relatively stable since the
beginning of the year.
Increases in Euro-dollar rates in London have been
generally in line with rising deposit rates in the United States, and
between January 5 and February 23, the differential on 90-day deposit rates
was practically unchanged at around 32 basis points.
(See Table 2 and
Chart 1.)
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Higher interest rates in the U.S. major factor affecting Euro-dollar
rates. Euro-dollar rates during January-February seem to have responded
mainly to higher rates in the United States and perhaps to increased demand
for funds from U.S. commercial banks. At the same time, monetary policies
in most European countries and in Canada continued to be restrictive and
credit conditions tight.
In the United States, financial market conditions have continued to
tighten since the Federal Reserve rediscount rate increase on December 6. The
market yield on U.S. Treasury bills rose from 4.31 per cent at mid-December
to 4.66 per cent on February 25. Conditions in U.S. money markets have also
pushed up yields on certificates of deposit.
(See Chart 1 and Table 3.) As
conditions tightened, U.S. banks reportedly drew funds from the Euro-dollar
market in volume in January-February.
Table 3.
Short- term Intere:31 Rates in Selected Financial Centers, 1965- 66
New
York y
1965
London — I
Frank- ,
furt ]/5/
Paris y
Zurich y i
1
Canada — ^
Euro-$
London
Oct. 29
4.03
5.27
6.62
4. 75
3.94
4.07
5.00
Nov. 26
4.09
5.24
6.50
4. 75
4.00
4.06
5. 12
3
10
17
31
4. 10
4.31
4.40
4.45
5.24
5.33
5.36
5.36
6.25
6.25
6. 25
6.25
4.81
4.62
3.69
4.69
4.00
4.00
4.00
4.00
4.08
4.34
4.44
4.41
5.25
5.56
5.56
5. 25
Jan.
7
14
21
28
4.52
4.58
4.56
4.53
5.36
5. 36
5.36
5.36
5.03
4.88
4.88
5.19
3. 75
3.50
3.63
4.13
3.81
3.81
3. 75
3.81
4.47
4.48
4.54
4. 51
5.12
5.25
5.25
5.31
Feb.
4
11
18
25
4.61
4.63
4.63
4. 66
5.39
5.42
5.54
5.54
5.16
5.13
5.13
5. 50
4.63
4.44
3.69
4.62
3.94
4.00
4.00
4.00
4.53
4.54
4.53
4.54
5.38
5. 50
5.38
5.44
Dec.
1966
1/
2/
3/
4/
5/
6/
_7/
11 a.m. Friday offer rate on 90-day Treasury bills.
Opening Friday offer rate on 90-day Treasury bills.
90-day interbank loan rate.
3-month deposit rate at large Zurich banks.
Average of rates for the week.
Day-to-day money against private paper; average of rates on Thursday each week.
Friday bid rate for 90-day U.S. dollar deposits in London.
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Financial conditions in Canada continued to be tight, and yields
rose along with those in the United States.
Sales of Treasury bills by the
Bank of Canada have kept pressure on bank liquidity.
Between December 31 and
February 25, Treasury bill yields rose from 4.41 per cent to 4.54 per cent.
(See Table 3.)
In Britain, the central bank adopted a more restrictive policy on
bank lending, and installment credit regulations were tightened.
Also,
financial markets tightened further: between January 28 and February 25,
Treasury bill yields increased from 5.36 per cent to 5.54 per cent.
There
has been an arbitrage margin (with exchange risk covered) of about 20 basis
points in favor of shifting from Euro-dollar into hire-purchase deposits since
the beginning of the year.
However, there has been no net incentive to shift
into local-authority deposits.
(See Chart 2.) Local authorities have reduced their short-term borrowings,and rates on these deposits have fallen
since December.
Tight credit conditions in Germany kept the Frankfurt inter-bank
loan rate substantially above the (covered) Euro-dollar deposit rate in the
last half of 1965.
(See Chart 3.) But because of the special facility of
using money market assets abroad to offset reserve requirements on foreignowned DM deposits, German banks have found it profitable to maintain funds
abroad.
From March to September 1965, German banks drew more dollar funds
than they placed in the London market.
(See Table 4„) During r ...ember, they
also drew on the Euro-dollar market substantially to meet year-end liquidity
needs; market reports suggest that much of this inflow was not reversed
during the first two months of 1966.
At the same time, Italian commercial banks--which supplied large
volumes of funds to the Euro-dollar market during the late summer and autumn
months (see Table 4)--have not added any significant amount of funds to the
market during 1966.
At the beginning of January, the Bank of Italy ceased
to make available any new foreign exchange swap facilities except to those
banks in a position of net indebtedness to foreigners, although it will continue to renew all outstanding swaps.
In addition, the winter and spring
months are seasonally unfavorable to Italian reserve gains. r r o m June to
September, however, Italian banks increased their dollar claims on British
banks from $283 million to $456 million.
(See Table 4.)
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c
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Table 4.
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U.S. Dollar Claims and Liabilities on London Banks
(millions U.S. dollars)
1965
End of Month;
GERMAN Residents
Claims
Liabilities
Net Claims (- net
liabilities)
March
-
June
September
December
84
92
118
95
67
145
95
188
8
23
-78
-93
ITALIAN Residents
Claims
Liabilities
Net Claims (- net
liabilities)
255
294
283
314
456
260
588
428
-39
-31
196
160
SWISS Residents
Claims
Liabilities
Net Claims
815
120
695
846
134
712
829
1,039
193
846
Source:
162
667
Bank of England, Quarterly Bulletin.
On the other hand, money market reports from Switzerland indicate
that the large commercial banks redeposited substantial funds in the Eurodollar market in January which they had withdrawn in December to meet yearend liquidity needs.
But renewed tightness in the Swiss money market in
February pushed rates in Zurich up to their December peaks, and there have
been reports of recent switching from Euro-dollars into Swiss francs.
Throughout most of 1965, tightening liquidity conditions in Switzerland discouraged Swiss banks from adding very much to their dollar claims in the
London market.
(Compare Table 4 and Chart 3.)
Short-term dollar funds flow from Europe to North America in 1965.
The withdrawal of dollar funds by U.S. residents in the spring of 1965 in
response to the U.S. balance-of-payments program produced a $680 million
decline in U.S. claims on Canadian banks.
(See Table 5.)
In addition, U.S.
banks increased their borrowings from U.K. banks by about $400 million from
December 1964 to December 1965, mostly in.the first quarter before the U.S.
measures were announced.
As a result, the net liabilities of U.S. residents
to these two countries nearly doubled during the year.
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Table 5.
United States Residents: Claims and Liabilities
on British and Canadian Banks
(millions of U.S. dollars)
End of Month:
1964
December
March
1965
September
December
On U. K. Banks :
Liabilities
Claims
Net liabilities
1464
501
963
1425
501
T #
1702
524
1178
1596
552
1044
On Canadian Banks:
Liabilities
Claims
Net liabilities
1758
1356
402
1686
1116
570
1926
1086
840
1748
980
768
3222
185 7
1365
3111
1617
1494
3628
1610
2018
3344
1532
1812
Total:
Liabilities
Claims
Net liabilities
3156
2194
1962
To compensate for the withdrawal of U.S.-owned deposits from Canada,
the chartered banks reduced their dollar claims and increased their borrowings
in the London market. U.S. dollar claims of these banks on London financial
institutions were reduced from $601 million to $438 million between the end
of March and the end of December (1965). Between these two dates, total
liabilities of these banks were stable, so that the reduced deposits of U.S.
residents were offset by increased deposits of British and Continental
(See Table 6.)
(included under "other") holders.
Table 6.
Canadian Chartered Banks: U.S. Dollar Claims and Liabilities
(millions of U.S. dollars)
End of Month:
Claims on Residents of:
U. S.
U. K.
Other 1/
Total
March
June
1965
September
1758
601
1100
3459
Liabilities to Residents of:
U.S.
U.K.
Other _1 /
Total
Net Claims
1/ Includes positions vis-a-vis Canadian residents
Source: Bank of Canada, Statistical Summary.
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December
1926
450
1153
3529
1748
438
1306
3492
1086
157
2284
3527
980
137
2370
3487
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Banks in the U.K., on the other hand, reduced their net borrowings
in the Euro-dollar market from the peak in the.first quarter of 1965 when
there was substantial switching from Euro-dollar to sterling local-authority
deposits.
The net liabilities of London banks in U.S. dollars decreased
from $1,126 million at the end of March (1965) to $728 million at the end of
September.
(See Table 7.)
Table 7.
U.K. Commercial Banks; External U.S. Dollar Claims and Liabilities
(millions U.S. dollars)
End of Month:
Liabilities
Claims
Net liabilities
Source:
1964
December
March
June
1965
September
December
4379
3696
4556
3430
4410
3536
4752
4024
5261
4547
683
1126
874
728
714
Bank of England, Quarterly Bulletin.
Other Euro-currency deposit rates climb higher
Deposit rates in foreign markets for the major European currencies
rose in line with higher Euro-dollar rates in January-February since these
rates are closely tied to Euro-dollar rates by the cost of forward dollar
cover.
However, some Euro-currency deposit rates rose more sharply than
others.
For example, Euro-sterling deposit rates increased from 6= 25 per cent
on January 7 to only 6.31 per cent on February 18 or by 20 basis points less
than the corresponding increase in the Euro-dollar rate.
This was because
there was a falling premium on the forward dollar against sterling during the
period, and the "dollar derived equivalent"!/ of a Euro-sterling deposit
stayed pretty much in line w i t h the actual Euro-sterling deposit rate.
(See
Table 8.)
In contrast, the Euro-Swiss franc and Euro-DM deposit rates rose
more sharply than both the Euro-dollar and Euro-sterling rates between
January 7 and February 18. This was because the discount on the forward
dollar against each of these currencies--the Swiss franc and the DM--was
reduced.
Their "dollar derived equivalents" were only seldom out of line
with the Actual deposit rates.
(See Table 8.)
J 7 Swiss franc, sterling, D-mark and other foreign currency deposits may
be "derived" from dollar deposits, (insured against exchange risk) by selling
dollars spot for the desired foreign currency and buying them forward for the
maturity of the original dollar deposit.
This operation is commonly called a
"swap."
The cost of borrowing the foreign currency in this case is the cost
of the original dollar deposit plus the cost of the forward cover.
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Table 8.
Date
1965
90-day Euro-currency Deposit Rates
(per cent per annum)
U. S. Dollars
(London)
Sterling
(Paris)*
Swiss
Franc*
4.75
D-mark*
October
29
5.00
.6.25 (6.29)
(4. 77)
5.69 (5.58)
November
26
5.12
6.31 (6.22)
5.00 (4.97)
5.50 (5.43)
December
3
10
17
31
5.25
5.56
5.56
5.25
6.44
6.56
6.56
6.19
(6.32)
(6.53)
(6. 58)
(6.34)
5.37
5.56
5.50
4.94
(5.23)
(5.54)
(5.54)
(4. 95)
5. 75
5.88
5.88
5.00
(5.56)
(5.84)
(5.94)
(4.95)_
January
7
14
21
28
5. 12
5.25
5.25
5.31
6.25
6.31
6.31
6.19
(6.15)
(6.28)
(6.20)
(6.14)
4.38
4.31
4.38
4.38
(4.38)
(4.23)
(4.23)
(4.44)
4.94
4,88
5.08
5.08
(4.85)
(4. 90)
(4.97)
(5.11)
February
4
11
18
25
5.38
5.50
5.38
5.44
6.31
6.25
6.31
6.38
(6.24)
(6.37)
(6.30)
(6.43)
4.94
4.81
4.81
4.75
(5.06)
(5.04)
(4.85)
(4.%%
5.08
5o 12
5.25
5.38
(5.14)
(5.15)
(5.18)
(5.3%
1966
*
The figures in parenthese indicate the "cost of obtaining" the foreign
currency deposit by borrowing U.S. dollars in the Euro-dollar market and swapping
them into the foreign currency desired by buying the foreign currency spot in
the exchange market and selling it forward for the maturity of the original U.S.
dollar deposit.
Rates on these "dollar derived" deposits may be compared with
those paid on direct foreign currency deposits in the Euro-currency market„
Long-term dollar bond flotations in Europe continue at peak level
Offerings of long-term U.S. doliar-denominated bonds in overseas
financial markets in January and February continued at the rapid rate which
developed in late 1965.
During the two month period, offerings averaged
approximately $100 million per month, about equal to average monthly offerings in October-December 1965 but almost five times greater than in the comparable year-earlier period.
(See Table 9.)
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Table 9.
U.S. Dollar Bonds: New Issues Sold Outside the United States,
January-February 1966
Coupon
(%)
Price
(%)
6.25
96.50
20
12
6.50
99.50
15
15
New York,
London and
Rome
**Avon Overseas Capital Corp.
6.25
97.50
15
15
New York
**Phillips Petroleum Int'l
Investment Co.
6.00
98.00
15
25
Ente Nazionale Idrocarburi
(Italy)
6.00
95.75
15
20
New York
and Rome
**Honeywell Int'l Finance Co.,
S.A. (Luxembourg)
Borrower
Term
Amount Underwritten
(yr. ) ($ mil. )
in
January
Mortgage Bank of Denmark
*Societa Generale Immobiliare
Int'l Holdings, S.A.
(Luxembourg) (with attached
warrants)
London and
Copenhagen
February
6.00
96.00
15
15
New York
Transalpine Finance Holdings,
S.A.
(Luxembourg)
6.50
100.00
20
27.5
N e w York and
London
**Int'1 Standard Electric
Holdings, S.A. (Luxembourg)
(convertible)
4.50
97.50
20
15
New York
97.50
20
15
New York
New York
**Int'1 Standard Electric Corp.
6.00
**Marathon Int'l Finance Co.
(convertible)
4.50
100
20
25
**Warner-Lambert Int'l Capital
Corp. (convertible)
4.25
100
15
15
*
**
Subsidiary of Italian firm.
Subsidiary of American firm.
TOTAL VOLUME
1965
Jan.-Feb.
45.0
May-June
127.0
July-Sept.
85.0
Oct.-Dec.
301. 0
TOTAL
$558.0
1966
199.5
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Continued heavy borrowing by U.S. firms is still the major factor
in the increased activity in the long-term dollar market overseas.
Of the
approximately $200 million raised in the first two months of this year, U.S.
firms accounted for $125 million or almost 63 per cent of the total.
Western European borrowers accounted for approximately one-third of the
total volume of funds raised, while Scandinavian b o r r o w e r s — w h i c h were the
major factor in the market during the first half of 1965-- accounted for
only 6 per cent of the total funds raised.
(See Table 10.)
In line with the extended restraint program on the use of domestic
funds for overseas operations, U.S. firms continue to form European-based
holding companies and subsidiaries (primarily in Luxembourg) or U.S. incorporated financing subsidiaries for the purpose of issuing bonds abroad.
In fact, 1966 is expected to be the busiest year since the Euro-dollar bond
market developed in late 1963 when foreign borrowers were closed out of the
New York market by the Interest Equalization Tax.
Some underwriters involved
in the business expect American firms alone to raise between $900 million
and $1 billion in Europe this year.
Approximately $500 million of this is
expected to be in long-term dollar-denominated public loans; the remainder
will be acquired through the placement of notes or bonds on a private basis
and through loans from European financial institutions.
Supplies of foreign dollars, however, are expected to get tighter
as the year goes on, and the cost of long-term funds could rise even higher
than currently.
Some market observers also foresee a re-entry of Japanese
residents as borrowers during the year.
With the growing domestic capital
requirements in Europe in addition, conditions in the European dollar capital
market may well continue to tighten.
Coupon rates edge higher, signs of congestion in the market.
In
January and February coupon rates on most non-U. S= issues edged generally
higher to a range between 6.25 per cent and 6.50 per cent, compared with a
general 6 per cent level in October and November 1965.
However, on non-convertible American issues, coupon rates held largely about 6 per cent.
Yields to maturity climbed higher, also, as issue prices were pared
to attract buyers. Among the non-convertible issues, most were sold at
discounts yielding between 6.50 and 6.60 per cent to maturity 3 except for the
Honeywell issue (an American firm), which was able to get by with a 6 per cent
coupon and a 6.38 per cent yield to maturity.
(See Table 9.)
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Table 10.
U.S. Dollar Bonds Issued Outside the United States*
(millions U.S. dollars)
Scandinavia
Denmark
Norway
Sweden
Finland
Western and Southern
Europe
France
E.E. C.
Italy
Austria
Austria-Italy-Germany**
British Commonwealth
Australia
New Zealand
U.S. Subsidiaries
Total
Jan.-Feb. 1966
Whole Year 1965
Borrowing Country
12 (6.1)
198 (35.5%)
12
35
93
60
10
62.5 (31.2)
82 (14.7%)
30
20
20
35
12
27.5
70 (12.5%)
,50
20
208 (37.2%)
558 (100%)
125 (62.7)
199.5 (100%)
* Compare primarily percentage distribution.
** Transalpine Pipeline issue. Funds borrowed by international consortium
of 13 oil companies to use in construction of pipeline from Italy to Germany
through Austria.
Numerous additional signs of congestion appeared in the market.
In
early January, Honeywell International Finance--the Luxembourg subsidiary of
the American Honeywell firm--had to reduce its previously announced $20
million issue to $15 million. A $15 million issue for the Mortgage Bank of
Denmark, underwritten in London by Hambros Bank, was pared at the last
minute to $12 million when it was brought to market in late January, and the
coupon was raised from 6.00 per cent to 6.25 per cent. Furthermore, the
American Sanitary and Radiator Company deferred indefinitely its previously
proposed $15 million issue because it was unwilling to pay the unexpectedly
high interest rates necessary to make the marketing successful.
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- 13 -
On the other hand, funds were successfully attracted when amply
rewarded. For example, a large amount of interest was aroused in the $15
million issue for the Societa Generale Immobiliare International Holdings,
a Luxembourg subsidiary of the Society Generale Immobiliare of Italy.
So heavy was the demand for this issue that a further $5 million is
expected to be announced shortly. Each of the 15-year bonds carried two
detachable warrants for the purchase of shares in the parent company, and
a now-rising Italian stock market makes these options look extremely
favorable.
The most publicized issue during the period was the first
instalment of the $138 million financing for the Transalpine Oil Pipeline project.
Bonds totaling $27.5 million were issued in late February
by Transalpine Finance Holdings, a Luxembourg firm formed specifically
to assist in this financing by a consortium of European and American
underwriters.
In terms of value this is the largest corporate underwriting
undertaken in recent European history; the selling group alone consists
of 68 international banking and underwriting concerns, the largest ever
put together in Europe.
The remaining $110.5 million needed for the
project is expected to be raised in instalments over the next 18 months.
The most ambitious and unique bond issue to date for an American
firm was a $30 million offering by two subsidiaries of the International
Telephone and Telegraph Corporation.
One subsidiary offered $15 million
worth of 6 per cent, 20-year sinking fund debentures, while the other
s u b s i d i a r y — a newly created Luxembourg holding company--sold $15 million
of 4.5 per cent, 20-year convertible debentures.
These issues were
offered in $1,000 units consisting of $500 of each and priced at a
discount of 2.5 per cent from par.
Because of tightening market conditions, U.S. firms turned
increasingly to bonds with convertible features.
Of the seven bonds
issued by American firms in January-February, three were convertible
into common stock of the parent company.
Although offering dates have not yet been set, several new
issues--both for U.S. and foreign firms--have already been announced.
These are expected to total between$145 million and $ L50 million and for
the most part be convertible debentures.
(See Table 11.)
Secondary market prices continue to slide
Prices of outstanding U.S. dollar bonds quoted in London
slid to new lows in February, also reflecting the increased demand
for foreign dollars.
(See Table 12.) Yields on the Government of
Austria, 6 per cent (1979-1984) bond reached 6„2 per cent in late
February, compared with 5.9 per cent as late as last October and
OFFICIAL USE ONLY
OFFICIAL USE ONLY
Table 11.
- 14 -
U.S. Dollar Bonds Announced for Issue in Foreign Markets
Underwritten
Amount
($ mil.)
*Pepsico Overseas Corporation
*Joy Manufacturing Co.
30
Convertible
debentures
10-15
Convertible
debentures
New York
and Europe
Telefonaktiebolaget
L.M. Ericsson (Sweden)
25
20-year bonds
London and
Copenhagen
*Int'1 Utilities Overseas
Capital Corp.
15
Convertible 20year debentures
London
*Clark Equipment Overseas
Finance Corp.
15
Convertible 15year debentures
New York
and Europe
^Chrysler Overseas Capital
Corp.
Convertible 20year debentures
New York
145-150
American firm or subsidiary of American firm.
5.8 per cent in July of 1965. Most of the Scandinavian issues also
dipped to new lows; the Government of Denmark 5,5 per cent (1970-1984)
issue fell $1.25 between the end of December and January to a new low
of $91.75.
According to recent reports, European and American investment
bankers are showing new concern over the relatively underdeveloped
trading conditions in the secondary market for dollar bonds in Europe There is a large volume of bonds outstanding in the market now. and
many of the firms actively engaged in underwriting the issues feel that
a more sophisticated market would make it easier to price new issues
and to develop greater interest in the securities on the part of
European investors. So far, trading conditions in the market have
been rather sticky with facilities somewhat limited aid large spreads
existing between the bid and asked prices of the bonds, both in London
and in Luxembourg. Some houses believe that the market offers an
OFFICIAL USE ONLY
- 15 -
OFFICIAL USE ONLY
Table 12,
Gov't of Austria
6%, 1979 -1984
Low
High
X S S U6
1964
1965
1966
103.62
101.75
97. 75
101.25
97.75
97.25
Price
Yield to
maturity
Last Friday of:
October 1965
November
December
January 1966
February
Issue
Prices and Yields of Selected U.S. Dollar
Bonds Traded in London
January 1966
February
Prices are bid.
City of Oslo
5-3/4%, 1969-1979
Low
High
103.62
102.12
93.12
109,12
112.0
93,88
105.75
92.75
92.00
103.0
101,12
94, 75
101.25
92.50
93.50
Yield to
maturity
Price
Yield to
maturity
Price
100.38
93.00
91.62
Yield to
maturity
Price
5.9
6.0
6. 1
97.12
96.25
93.00
5.7
5.7
6.0
94.25
94. 25
93. 75
6.3
6. 3
6. 3
96.88
96. 25
94. 00
6. 0
6.0
6. 2
97.50
97.38
6.2
6.2
91. 75
91. 75
6. 1
6. 1
92,00
92.50
6. 5
6. 4
93. 75
92.88
6. 3
6.4
101.38
100. 25
93.75
Price
Last Friday of:
October 1965
November
December
IRI
5-3/4%, 1975-1979
Low
High
99.38
99.00
97. 75
Mort
Bk. Denmark
5-5/8%, 1970-1984
Low
High
1964
1965
1966
Gov't of Denmark
5-1/2%, 1970-1984
Low
High
99.50
92.34
92.50
Yield to
maturity
Copenhagen Telephone
5-3/4%, 1970-1984
Low
High
102,62
102.25
93.38
Price
100.12
92,00
92,00
Yield to
maturity
It oh
6 - 1 / 4 % , 1984
i High
Low
100.0
100.25
92.50
Price
94. 75
78.00
89.25
Yield to
maturity
Takeda
6%, 1984
-Hifih
105.5
107. 0
101.25
Price
Low
98.5
88.00
99. 75
Yield to
maturity
96.00
95.00
92. 75
5.9
6.0
6. 1
98. 25
97.38
92.00
5.8
5.9
6. 3
87.00
88.75
90.50
7.4
7.2
7,0
96,25
98.50
100.75
6. 2
6.0
5.8
92,62
92.75
6. 2
6. 2
92,00
91. 75
6.3
6.4
90.00
88.50
7. 2
7.4
100.75
96.00
5.8
6. 2
OFFICIAL USE ONLY
opportunity for trading profits also. The First Boston Corporation has
set up an operation in London to trade in these dollar bonds, and Hambros
Bank, one of London's major merchant banks, has transferred its bond dealing
department to Zurich to specialize in the new international dollar and
foreign currency issuesReports are also out that several other
London merchant banks are considering getting together to take
advantage of the trading opportunities that are developing along with
the market.
II.
Chart 1
Chart 2
Chart 3
Chart
Chart
Chart
Chart
Chart
4
5
6
7
8
Chart 9
Chart 10
Ten Charts on Financial Markets Abroad
- N e w York, London, Montreal: Yields for
U.S. Dollar Investors on 3-montti^Funds
- London: Yields for U.S. Dollar Investors
on 3-month Funds
- Interest Arbitrage: Frankfurt/London
Zurich/London
- Interest Arbitrage, N e w York/Canada
- Interest Arbitrage, New York/London
- Short-term Interest Rates
- Long-term Bond Yields
- Spot Exchange R a t e s — M a j o r Currencies
Against U.S. Dollar
- 3-month Forward Exchange Rates
- Industrial Stock Indices
Europe and British Commonwealth Section.
OFFICIAL USE ONLY
NEW Y O R K , L O N D O N , M O N T R E A L ;
YIELDS FOR U.S. DOLLAR INVESTORS O N 3 - M O N T H FUNDS
D O L L A R DEPOSIT R A T E S : N E W Y O R K - L O N D O N
EURO-DOLLAR DEPOSIT
U . S . CERTIFICATE OF DEPOSIT
U{ J
J \
I A /
u
, ,
I
EURO DOLLAR OVER
U.S. CERTIFICA T E OF DEPOSIT
,
,
,
\ j
T i l l
I I I
\
'
1 1
1 1
1 1
F I N A N C E C O . PAPER RATES ( c o v e r e d ) , Q U O T E D I N N E W YORK
Friday figure*
CANADIAN F I N A N C E
COMPANY
U.K. HIRE PURCHASE
m
lLaJ
U.S. FINANCE COMPANY
Mar.
Jun.
1964
Sept.
Dec.
Mar.
Jun.
1965
Sept.
Dec.
Mar.
iun.
1966
Sept.
Dec.
L O N D O N : YIELDS FOR U.S. DOLLAR
E U R O - D O L L A R D E P O S I T RATES
HIRE P U R C H A S E A N D
LOCAL
I
-
INVESTORS ON
AUTHORITY
I
I
.
EURO-DOLLAR DEPOSIT
3-MONTH
FUNDS
D E P O S I T RATES ( c o v e r e d )
-
A
vj
-
-
HIRE PURCHASE
I
i
i
DIFFERENTIAL
.
I
V
-A
l
l
| |.
i
I
I
W
l
I
j w v
^
'
FAVOR HIRE PURCHASE
I
I
I
I
FAVOR E U R O D O L L A R
* V
I
I
I
I
I
I
l
I
I
l
I
I
LOCAL AUTHORITY DEPOSIT
EURO-DOLLAR DEPOSIT
I
I
DIFFERENTIAL
I
A
- - V
I
I
1964
I
W\
i
j
\
|
FAVOR LOCAL AUTHORITY
v
r
i
i i
1965
1
1
FAVOR EURODOLLAR
i i i i
1
1
l 1
1966
1 l 1 1
INTEREST A R B I T R A G E : F R A N K F U R T / L O N D O N , Z U R I C H / L O N D O N
FRANKFURT INTERBANK
LOAN
RATE V S . L O N D O N
E U R O - D O L L A R RATE ( C O V E R E D )
I N TERMS OF D M _
INTERBANK LOAN RATE
EURODOLLAR
r
T
DIFFERENTIAL
FAVOR FRANKFURT
FAVOR EURO-DOLLAR
Z U R I C H D E P O S I T RATE V S . L O N D O N
E U R O D O L L A R RATE ( C O V E R E D )
I N TERMS O F S W I S S F R A N C S
EURODOLLAR
SWISS DEPOSIT RATE
1
r
DIFFERENTIAL
FAVOR EURODOLLAR
H
PRICE OF G O L D I N L O N D O N
35.2
35,0
1964
1965
1966
INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A
3-MONTH
T R E A S U R Y BILL RATES
CAN. FIN. CO.lPAPER
CANADA
UNITED STATES
BILL RATE D I F F E R E N T I A L
AND
FORWARD C A N A D I A N
DOLLAR
SPREAD IN FAVOR OF CANADA
FORWARD RATE
3-MONTH
C O V E R E D RATE D I F F E R E N T I A L S (NET I N C E N T I V E S )
FAVOR CANADA
PRIME FINANCE PAPER
FAVOR U.S.
FAVOR CANADA ~
TREASURY BILLS
FAVOR U.S.
1963
1964
1965
1966
INTEREST A R B I T R A G E , N E W Y O R K / L O N D O N
3 - M O N T H TREASURY
BILL
RATES
LONDON I
U.K. LOCAL AUTHORITY DEPOSITS
6
|
NEW YORK
4
2
RATE D I F F E R E N T I A L
FORWARD
STERLING
AND
I
3-MONTH
I
I
S P R E A D I N F A V O R OF L O N D O N
PREMIUM
DISCOUNT
FORWARD RATE
RATE D I F F E R E N T I A L W I T H F O R W A R D E X C H A N G E C O V E R ( N E T I N C E N T I V E )
I N F A V O R OF L O N D O N
I N F A V O R OF N E W Y O R K
1963
1964
1965
1966
+
0
S H O R T - T E R M I N T E R E S T RATES
*
U.K.
EURODOLLAR - LONDON
U.S.
GERMANY
JAPAN
U.S.
CANADA
SWITZERLAND
1963
1962
3-month ireoiury bill roie» lor oil countries except Jopon
and Switzerland ( 3-month deposit role )
3-monlh role lor
U.S. dollar depoeili in London.
1964
1965
( Average role on bonk loom and diitoueli )
1966
L O N G - T E R M B O N D YIELDS
Weekly figvrei
GERMANY
U.S.
CANADA
NETHERLANDS
U.S.
SWITZERLAND
1962
1963
1965
1966
S P O T E X C H A N G E RATES - M A J O R C U R R E N C I E S A G A I N S T U . S . D O L L A R
SWISS FRANC
GERMAN MARK
U.K. STERLING
BELGIAN FRANC.
FRENCH FRANC
DUTCH GUILDER
CANADIAN DOLLAR
ITALIAN LIRA
JAPANESE YEN
1.2
M
J
S
1964
D
M
J
1965
S
D
M
1
1966
S
D
3 - M O N T H F O R W A R D E X C H A N G E RATES
Friday figures
A G A I N S T U. S. D O L L A R S
P.,
p., on*-,.
GERMAN MARK
Iv
A
SWISS FRANC V
n'
POUND STERLING "
DISCOUNTA G A I N S T P O U N D STERLING - L O N D O N
M
SWISS FRANC
- G E R M A N MARK
U. S. DOLLAR
DISCOUNTA G A I N ST P O U N D S T E R L I N G - L O N D O N
PREMIUM*
DUTCH GUILDER
BELGIANFRANC
FRENCH FRANC
M
J
DISCOUNT-
s
1964
D
M
J
1965
S
0
M
J
1966
S
D
X
Chofi 10
INDUSTRIAL
STOCK
INDICES
10<a.mn
tolio icala
SWITZERLAND
250
GERMANY
U K
200
U S
150
100
300
JAPAN
200
CANADA
U.S.
150
100
1963
1964
5wm Book Corporation industrial Hock index
Japan: index of 22 5 industrial and other stocks traded on the Tokyo exchange
1965
1966
H. 13
No. 238
Latest Figures Plotted In H. 13 Chart Series, 1966
(all figures per cent per annum)
Upper panel
(Wednesday,
March 9, 1966.
Chart 4
Chart 1
(Friday,
March 2
March 4
)
Euro-$ deposit
5 . 25
U.S. certif. of deposit
5 . 11
Spread favor Canada
-0.02
Lower panel
(Friday,
)
Forward Canadian $
-0.40
4,.88
5.,53
5.,20
Net incentive (Canada + )
-0,42
March 4
Finance co. paper:
U.S.
Canada
Hire-purchase paper, U.K.
Treasury bills:
(Friday,
March 4
Treasury bills:
Euto-$ deposits:
5 =50
5. 62
90-day
180-day
Hire-purchase paper
(February 18)
Local-authority deposit
(February 18)
Chart 3
Upper panel
(Period: February 7
)
5. 06
(average)
January 15
-1.11
Net incentive (U.K. + )
-0.23
3. 81
(Friday,
March 4
Treasury bills:
U.S.
4.57
U.K.
5.45
Germany
Canada
4.00 (Feb. 18)
4.55
Euro-$ deposit (London)
5.50
Zurich 3-mo. deposit
(Date:
January 15
Japan composite rate
(Date:
December 31
3. 81
35.166
)
For description and sources
of data see special annex
to H. 13, Number 164, ,
September 16, 1964,
+0».
Spread favor U.K.
Forward pound
Chart 6
Eupo-$ deposit
Price of gold
(Friday, February 18
5.45
4.,57
5. 25
5. 19
Zurich 3-mo. deposit
U.K.
ti.S.
5. 53
Interbank loan (mid point)
Lower panel
(Date:
5.75
Chart 5
)
March 4
Call
. 5.00
7-day
5,19
30-day 5,25
4.55
4.57
Canadian finance papet
Chart 2
(Friday,
Canada
U.S.
Chart 7
U.S. Gov't. (Wed., Mar. 2 )
4.79
U.K. War Loan (Thurs., Mar. 3 )
6,69'
German Fdd.
7.39
(Fri.,
Feb-
Swiss Confed. (Fri.,
25
)
Feb. 2 5 )
Canadian Gov't. (Wed., Mar, 2
Netherlands Gov't, perpetual 3%
(Fri., February 25
)
)
5.72
5.79
@FedFRASER