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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 O F GOVERNORS
H. 13
November 30, 1962
No. 87
I CAPITA1—MARKET-DEVELOPMENTS ABROAD
I.
IIo
—
Germany;
Germany
Nine Charts on Financial,Markets Abroad
Money and Capital Markets in October
A 16 per cent rise in German stocks between October 12 and November 20
brought to an end, at least for the moment, a downward trend which began in
mid-1960 and has been particularly steep during 1962 (See Chart 7)» This vigorous
advance, which coincided with a sharp rise in prices in New York and in European
financial centers, appears to reflect a market opinion that German share prices
have now passed the low point. However, the bond market showed no improvement
during this period and market yields advanced further beyond the 6 per cent level.
Over the past several months, the German banks and business community
have been experiencing a general contraction in liquidity. As a result, the
banks have recently begun to show greater restraint in their lending and security
market transactions.
On the bond market, the reduced liquidity of the banks and a substan. tial slate of new issues brought average bond yields to about 6,1 to 6,2 per
cent in recent weeks. The inability of the market to hold the 6 per cent level
in October was attributed to "some DM 200 million of recent industrial issues. . ,
/In/ the hands of the underwriting banks, , .clogging the market," The new
issue slate has included a DM 2£0 million issue of the German Railways and two
industrial issues totalling DM 125 million. The Federal Railways issue to be
offered in early December is expected tube at the same terms as a IM 2^0 million
offering by the Federal Government which was fully subscribed on October 22:
a 6 per cent coupon at par for 10 years with no call provision. Because the time
of large Federal budget surpluses has passed, it is expected that the Federal
authorities will henceforth have to have regular recourse to the capital market
to finance the deficits.
Tightening domestic liquidity and the inadequacy of the German capital
market seem to be causing an increasing number of businesses to turn to foreign
markets for financing. A large German firm floated a SFr <0 million (DM SO
million) loan in Switzerland during October for the second time this year. Part of
the larger net inflow of private capital in the payments data for the third
quarter reflects heavier borrowings abroad by German firms as well as by German
banks.
Declining security prices, together with reduced profit margins, have
created liquidity pressures on both industry and the banks. In addition, moneymarket factors have been reducing the free liquidity resources of the banks*
Despite the Federal cash deficit, the public authorities are continuing to drain
e
OFFICIAL USE ONLY
DECONTROLLED AFTER SIX MONTHS
OFFICIAL USE ONLY
- 2 -
reserves from the banks for two reasons: (a) Federal spending abroad, a
significant nart of total spending, does not provide reserves to the banks; and
(b) the Treasury deficit has been covered by market borrowing. In addition,
notes in circulation have continued to expand. The inflows of foreign funds to
the banks in recent months, despite repatriation of money-market assets and the
resumption of German borrowing abroad,
"were no longer sufficient, as they were in early years,
to offset—still less to outweigh—the s:.v.v.c;wyr• : influences depressing bank liquidity,"
(Bundesbank, Monthly Report, October 1962, p. 5»)
On the external side, the German-balance of payments showed a deficit
of DM 2h2 million in the third quarter compared with a DM lli6 million deficit
in the preceding three months. During the third quarter, large net tourist
payments virtually eliminated the surplus on other "goods and services" transactions;. the long-term private capital inflow was limited. Despite rising imports,
the seasonally-adjusted trade surplus averaged #91 million in the third quarter
(comnared with an average of about $82 million in the first half of 1962) and
was about $113' million in October, (See Table U,)
Money market. As a result of technical factors, money-market rates
eased in October from high late September levels. Rates on day-to-day money
declined from 2-3/U — 3 - 1 A at the beginning of October to an end of the month
rane:e of 1 - 3 A - 2-1/8 (see Table 1), Rates on three-month loans continued
high, perhaps in part because of rising rates on deposits in the Euro-dollar
market and in the United States. At the end of October, the rate on call money
stood below the Treasury bill rate for the first time in months. The ready
availability of short-term money was due in major nart to the measures taken in
,,.earlv October b^ the Bundesbank to induce the banks to hold money in Germany
until the end of the year.
Table 1,
Money Market Rates in Frankfurt, September and October
(.in per cent per annum)
'
Day-to-day money
Sept,
Oct,
3- 7
10-lU
17-21
21-28
1- S
8-11
15-19
22-26
2-7/8
2-7/8
3
3
2-3/ii
2-1/8
2-1/8
--
3
3-1/8
3-1A
3-1A
3-1A
2-3A
2-1A
1-3A - 2-1/8
Three-month loans
3-1/8 - 3 = l A
3-lA
3-1/8
3-1/8
U-l/U
k-l/k
1-3/8
-
3-1A
3-1/1*
U-l/2
U-l/2
W / 8
ii-3/8 - ii-5/8
The money market tightened appreciably in the first week of November
as commercial banks replenished their required reserves with the Bundesbank.
Call rates rose to 2-7/8 - 3 per cent but eased during the following week. By
OFFICIAL USE ONLY
OFFICIAL USE ONLY
- 3 -
the third week of November the market for day-to-day money was. extremely liquid
with rates at 2-1/8 per cent - almost.a full per cent under the central bank
discount rate. The liquidity on the money market was the result of the fact
that commercial banks were highly liquid in anticipation of year-end credit
stringencies.
Bond market 0 The general weakening of the bond market which began
some time ago continued during the period under review. Whereas six per cent
issues were placed easily in July at par despite a record volume of new issues,
certain 6 per cent loans opened for .subscriptions in October at 9 9 - 3 A were still
not fully taken up by the middle of November, The October Report of the
Bundesbank attributes the weakness of the market to the large volume of new
issues and the especially large, financing demands of the Federal Government
during the past few months, (See Table 2„)
1
1961
II
III
"Occasional" borrowers' bondss
Industrial
Public authority
Foreign issuers
Other bonds a/
39
Wtl
16
78
101
Total occasional borrowers'
bonds
IV
I
II
1962
III
I
Table 2, Gross Placements in German Security Markets
(in millions of IE, monthly or monthly average)
Sept.
112
3lU
32
89
72
136
113
25
358 . ^ 360
56
76
117
—
5o
8U 79
h —
J3_8L
132
15U
_56
25L
581
211
111 213
5U7
3U0
625
Wil
386
#6
1,107
525
735
h6h 503
50F 715
665
1,2T?
153 532
TTS 1,137
530
971
125
HIT
351
g63
352 130
185
205 _ 172
1U8
_55
Total security placements
at issue value
i,U6l 999
957 8U6
1,397 998 1 ,329 1 9 119
~a7 Mostly bonds of specialized credit institutions, especially in 1961,
5/ Includes medium-term notes (Kassenobligationen),
866
Mortgage and communal bonds
Total gross bond placements b/
Gross share placements
Bond prices dropped during October and the average yield on bonds rose
to 6,1 - 6,2 per cent, (See Chart 6,) The yield on medium=term,"non=bonded loans
(Schuldscheindarlehen) had risen above 6,5 per cent by mid=November, Preliminary
calculations indicate that the total nominal value of bonds traded in October
amounted to DM 875 million; stocks totaled DM. 108 million.
Some bankers find "grounds for hope that the rise in interest rates is
coming to an end in the fact that the volume of new mortgage bank- issues has
decreased. These issues exert considerable influence on the market and a further
increase in mortgage rates by the mortgage banks seems scarcely possible because
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-
OFFICIAL USE ONLY
- i; -
of ever increasing competition from the savings banks and insurance firms„
Moreover the suspension of the Government subsidy on housing should lead to
a decrease in the number of new mortgages, thus easing the over-all demand on
the bond market..
A relatively heavy slate of new issues was announced for December
including two 6 per cent industrial issues totaling DM 125 million which will
probably be offered at 99-1/2 of par and a DM 25>0 million Federal Railways loan*
The Railways issue will carry a coupon of 6 per cent and will be non-callable
until maturity in January 1973, Market sources question whether the rate of
the Railways issue can be held at par. Because of market conditions, the tranche
of a Federal Government loan scheduled for December has been postponed till
January,
Stock marketo The bear mood which dominated the stock market throughout the third quarter seems finally to have worn itself out. After the midOctober shake-out when the Frankfurter Allgemeine general index fell to 132 9 the
market regained its losses and during the last half of the month consolidated
its -oosition. The FAZ index rose 9 per cent from the 12th to 31st of October
and another ? per cent from the 1st to 20th of November when the index reached
1E>6 on an increasingly high rate of turnover.
The performance of the market in the past few weeks has shown an
underlying strength in holding steady throughout the Cuba crisis, the Spiegel
affair and the German Cabinet crisis. Careful buying is evident but unfavorable
public sentiment seems to have been dissipated, at least for the moment, In the
third quarter of 1962, foreigners purchased DM 313 million worth of German
stocks; foreign sales totaled only M 175 million. These figures suggest that
sales of stocks by foreigners could not have been responsible for market weakness
over the past few months as was thought in some circles.
Recent price trends. Prices have remained relatively stable in
Germany over the past few months. Between June and September, consumer prices
declined by one point because of lower food prices, (See Table 3,) Export
prices also declined by one point. The wage index does not go beyond June,
Table 3,
1953 - 100
-
I960
Industrial production
Hourly wages in manufacturing
Consumer nrices
Wholesale prices
Export prices
Sources
I
E n d 1961
II
III
of-Pe
r i o d
IV
I
• II
1962
III
Aug,
Sep,
186
191
190
188
192
195
199
197
151
112.0
101,2
101
152
113,0
10L.8
100
153
11U,1
10L,7
101
161
111,9
101,9
101
163
115,3
105,3
102
169
117,0
105,7
102
172
118,9
106,1
102
118,6 118,2 117,8
106,2 106,2 106,3
101
101
101
OECD
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OFFICIAL USE ONLY
- 5 -
German foreign trade. The seasonally-adjusted German trade surplus
rose in the third quarter about 10 per cent above the uncommonly low first and
second quarter levels but is currently only about half the 1961 surpluses,
(See Table it.) The steep increase in imports, the chief reason for the diminishing trade surplus, has slowed down very considerably, Imports increased
2 per cent from the first to second quarter but only 1 per cent from the second
to third» Exports increased 2 per cent in both periods. Imports of foods
declined by a large amount3 however imports of finished goods and consumer
products — most notably textiles, leather and paper goods, shoes, and electric
products — increased. Preliminary estimates show the trade surplus in October
advanced further e Although both imports and exports declined, the greater
decline in imports produced a trade surplus of $115 million in the month.
Table iu German Foreign Trade
(seasonally adjusted, monthly or calendar month-in millions of U,S, dollars)
1961
Calendar Year
I960
1961
Exoorts
Imnorts
9hl
Surplus
10ii
p7
1061
8U3
150
1
1037
11
H I
1071
1085
m
917
918
173
l5Lt
167
1962 .
IV
1052
JkI
105
.
I
II
III
1083 1105 1123
999
8k
Sej^
lliiO
102U 1032 . 1 0 3 8
81
91
102
Octop/
1109
J9h
115
Preliminary
In .September Germany and Japan signed a treaty providing for a
liberalization of the German protective quotas set on Japanese imports, the
most important of which are textiles and ceramics. Under the terms of the
treaty, the quotas on certain types of goods may remain in effect for another
year; in some instances a 10 per cent increase in quota has been agreed upon.
New quotas for cotton textiles were set; they remain in effect for the next
five years but may be discussed at the end of three years if desired.
Seventy-five per cent of Japanese shipments to Germany are now free of restrictions.
Balance of payments and reserves. Despite the improved trade balance,
the German balance of payments showed a deficit of DM 2^2 million compared with
a DM lU6 million deficit in the second quarter, (See Table 5„) A very large
increase in net tourist spending virtually offset the surplus on all other
"goods and services" transactions. Reduced official payments abroad and some
increase in private capital inflow helped to limit the size of the payments
deficit. In nart, the capital, inflow represented heavier purchases of German
securities by foreigners* There was also an increase in short-term trade credits
received by the German commercial banks. Partly offsetting these favorable
developments were an increase in official outpayments on long-term capital account,
consisting mainly of increased credits to India and Turkey, and a neb outflow
of unrecorded private capital (comprising the bulk of errors and omissions),
OFFICIAL USE ONLY
OFFICIAL USE ONLY
Table 5.
German Balance of Payments, Oct. 1961 - Sept,
(in millions of DM]
1961
Jan„Mar.
Oct.
Dec,
Balance of Payments
l e GOODS- AND SERVICES
Trade balance
Services purchased
by foreign troops
Tourism (net)
Other
Total
2FICIAL PAYMENTS
Donations a/
Long-term capital
Short-term capital
Total
1265
'617
963
- 247
- 908
1106
1021
-'291
-1012
-1208
277
TE9I3
PRIVATE CAPITAL
Securities transactions:
German -recurit.iesc/ 238
Foreirm securities^/- 37
Other long-term
Short-term b/
Errors and omissions
Total
- 181
185
- 599
- 39U
Financed bye
Y, CO^tERCIAL B A H FOREIGN
ASSETS (increase-)
1711
W
c/
3/
1231
938
1066)
-#2)
-6l5)
—%2T
-1012
- 68
- 9bh
- U83
- 1U1
198
523
- 3U0
- 168
101
-5%
- 69
1129
hO
July
280
968
(378
(-U0U
(-136
res?
. -869
-709
Aug.
217
322)
-514)
35)
—50-
Sept.
U71
-250
"221
-256
-k&9
288
"337
-2U2
78
-109
-211
158
1
130
- 11
70
- 13
U6l
-262
-20
376
- 7
36
137
- 96
-TVS
h
- 52
-159
-hou
218
358
- 23
20
1
-33?
U3
- II4.6
-2U2
-131
- 17
- 9k
1068
832
-17ii
236
770
- 1U0
- 20U
2U7
122
260
- 51
- 27
- 13
200
- 578
-959
^90
96
-305
-2381i
301
228
1812
23kl
-
1962
831
U3
-
1U6
Excluding commerical bank foreign assets.
Met purchases of German securities by foreigners,
Net purchases (-) of foreign securities by Germans,
1962
JulySept.
^95
RESERVE MOVEMENTS
IMF Bosition
292
Bundesbank liabilities - 352
Gold and foreign
exchange (increase-) - 1*20
Total
riJBO
TOTAL FINANCING
Apr»June
780
SURPLUS OR
DEFICIT (-) -1231
2o
- 6 -
O^TCTAI, USE ONLY
2b2
-192
17
-863
~=S7E-
OFFICIAL USE ONLY
- 7 -
In spite of the overall balance of payments deficit of DM 9U million in
September, the Bundesbank's gold and foreign exchange assets increased by
DM 863 million in that month due largely to the increase of DM 200 million in
Bundesbank liabilities, presumably to foreign central banks, and to a DM 770 million
repatriation of foreign exchange by the commercial banks. Hence, the net gold
and foreign exchange assets of the Bundesbank and the commercial banks increased by
EM 93 million in September, or, adjusting for DM drawings of DM 13 million from
the IMF by Egypt, by DM 106 million ($26.$ million).
Europe and British Commonwealth Section,
II. Nine Charts on Financial Markets Abroad
Chart
Chart
Chart
Chart
Chart
Chart
Chart
Chart
Interest Arbitrage, United States/Canada
Interest Arbitrage, New York/London
Interest Arbitrage for German Commercial Banks
Interest Arbitrage, Frankfurt/London
Short-term Interest Rates
Long-term Bond Yields
Industrial Stock Indices
Spot Exchange Rates - Major Currencies
Against U.S. Dollar
Chart 9 - 3-month Forward Exchange Rates
1 2 3 i| 5 6 7 8.-
OFFICIAL USE ONLY
Table 6.
Germany:
Selected Money Market Yields and Exchange Rates
- 8 -
{per cent per annum)
3-mo. Eurodollar de.3-mo. inter- Spread
posits
bank loans
in favor
Frankfurt
London
• London
6
196l-0cte
Nov. 10
Dec. 22
lo62-,Tan.
?eb.
Mar.
Apr.
May
June
July
16
30
27
25
27
AUPJ. 2k
Sep. 21
Oct.
11
19
26
Nov. 2
9
a/
— '
3.25
3.31
3.9%
k.oo
3.63
3.75
-0.75
-0.32
+0.13
3.63
3.a
3.69
3.#
3.81
3.66
3.9k
3.72
3.9k
3.81
3.91
3.91
k.13
k.19
k.06
3.00
2.75
2.63
2.9k
3.13
+0.50
+0.56
+1.06
+0.<6
+0.68
n.a.
+0.63
+0.3U
+0.75
-0.57
-0.U7
-0.59
-0.37
n.a.
n.a.
3.31
3.38
3.19
1.38
k.38
k.5o
k.50
n.a.
n.a.
3-mo. U .s. %
into Marks
Comm.
banka/ Market
+0.25
+0.25
—
+0.25
+0.50
+0.25
+0.25
+0.25
+0.25
+0.50
+0.75
+0.75
+0.75
+0.75
+0.75
+0.75
+0.75
+0.75
,3-mon Treas„ h-n-i*
U.K.
Ger.
U.S.
+0.60
+0.73
+1.30
6.00
5.31
5.28
2.13
2.00
2.00
2.31
2.U7
2.60
+0,95
+0.62
+0.35
+0.32
+0.35
+0.21
+0.82
+0.63
+0.65
+0.L7
+0.60
+0.56
+0.75
+0.50
+0.6L
k,3k
5.kk
k.3k
1.03
3.69
3.78
3.81
3.69
3.63
3.55
3.53
3.69
3.78
3.78
3.72
1.88
1.88
2.00
2.13
2.13
2.25
2.38
2.50
2.50
2.63
2.63
2.63
2.63
2.63
2.63
2, 7k
2.83
2.75
2.7k
2.69
2.7k
2.88
2.82
2.76
2.76
2.77
2.7li
2.73
2.83
2.80
Bundesbank special rate for 2 to 6 month depositse
Germany:
Comm.
bank
loans®./
Selected Loan, Deposit and Security Rates
(per cent per annum)
Bond yields
6-12 mo. deposits
5-1/2%
Public
Railway authorShare
Savings
Time
1958-83 ities
yields
Yield
gap
1960-March
Dec.
8.5o
9.50
3.75
k.50
3.25
3.50
6.3
5.9
6.k
6.2
2.27
1.96
k.l
k.2
196l-March
Dec.,.
8.00 .
7.50
k.25
3.50
3.25
2.75
' 5.8
6.0
5.9
6.0
2.11
2.k9
3.7
3.5
1962-Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
7.50
7.50
7.50
7.50
7.50
7.50
7.50
7.50 .
7.50
3.5o
3.50
3.50
3.5o
3.50
3.50
3.50
3.50
3.5o
.2,75
2.75
2.75
2.75
2.75
2.75
2.75
2.75
2.75
5.8
5.7
5.6
6.6
5.7
5.8
5.8
5.8
5.9
6.0
5.9
5.7
5.6
5=6
5.8
5.9
5.9
6.0
6.0
2.57
2.61
2.65
2.77
3.23
3.k9
3.71
3.58
3.79
3.3
3.1
3.0
2.8
2.6
2.3
2.1
2,2
2.1
a/
Approved credits on current account.
INTEREST
{Thursday
ARBITRAGE,
UNITED
S T A T E S / C A N A D A
figures
THREE-MONTH
TREASURY
BILL
RATES
CANADA
U
RATE
DIFFERENTIAL
AND
FORWARD
UNITED S T A T U
CANADIAN
F
DOLLAR
S P R E A D IN F A V O R OF C A N A D A +
A /
/_
RATE
DIFFERENTIAL
WITH
FORWARD
EXCHANGE
COVER
NET I N C E N T I V E IN F A V O R O F C A N A D A +
±_
1959
I960.
1961
1962
VD
>0t.
Friday figures
I
3-MONTH
1
NEW
1
TREASURY
Y O R K / L O N D O N
1
BILL
r
RATES
NEW YORK
I
RATE
I
1
1
1
DIFFERENTIAL A N D
3-MONTH
FORWARD
1
|
-
STERLING
fv
-
-
I. $» E A D I N F A V O R O F I O N D O N
- /
Y S -
z—
sr\r
/>
"\r'"
I
\
V'
I| \ ^ - Y
FOR W A R D R ATE
\
\
-
\
1 I
11
r
RATE
11
r~i
11
1 1
1 1
11
1 1
1 1
WITH
EXCHANGE
COVER
IN F A V O R O F L O N D O N
IN F A V O R O F N E W Y O R K
-
u
.. .1 .
DIFFERENTIAL
FORWARD
1 1
11
/
1 1
1 1
1 1
1 1
11
INTEREST
ARBITRAGE
'3-MONTH
FOR
TREASURY
J EURO-DOLLAR
GERMAN
BILLS,
DEPOSIT
COMMERCIAL
INTERBANK
BANKS
LENDING
RATE
AND
RATES I
.mo-Dotui •_
G I R M A N TREASURY >111
RATE
DIFFERENTIAL
AND
FORWARD
DEUTSCHE
MARK
T M L T A B IN F A V O B O F F R A N K F U R T :
rFORWARD RATI.
RATE
W ITH
DIFFEREI^TIAL
FORWARD
EXCHANGE
1
yIT i H r m n v r »
1
COVEIR
1—
IN F A V O R O F F R A N K F U R T ( + |
7 - ,
T ^ l
S i
M
r
T
T
?
l ^ Y —
-
/ SA - A F
p ' X
I
r
J
^ V . 1
I1
!
T R E A S U R Y LLLLS
1
T
I N T E R B A N K 10 A N R A T I
N
»
A
1
I
J
I
1
s
1
1
V
1
I
1
*
I
I
T
• ,
I
$
,
D
INTEREST
"3-MONTH
ARBITRAGE,
F R A N K F U R T /
TREASURY-BILLS
INTERBANK
LENDING
L O N D O N
AND
RATES
F A
5 E R M A K LMTEBBAHK
GERMAN TREASURY BILLS
RATE D I F F E R E N T I A L A N D
|
- 3 - M O N T H FORWARD STERLING
GERMAN TREASURY BILLS
F O R W A R D RATE
RATE
DIFFERENTIAL WITH
FORWARD
EXCHANGE
COVER
GERMAN TREASURY
BILLS
V"
s
'i9 60
1961
19 62*
SHORT-TERM
INTEREST
RATES *
CUtO-DOUAl . 10M00N
T\
-V,—•
|
1951
j\
CANADA
1962
3-monlh Ireoiury bill rolei lot all coumriei except jjopan (3-mo nth interbank deposit rale) and Switzerland & month deposit role) . ,
"j"; 3-monlh rale lor 0. S. dollar deposits in London.
LONG-TERM
BOND
YIELDS
U.K.
INDUSTRIAL
STOCK
INDICES'
of all stocks traded on Tokyi
\V#
SPOT
EXCHANGE
RATES
-
MAJOR
CURRENCIES
AGAINST (U.S.
DOLLAR
\r
ITALIAN
LIRA
3-MONTH
AGAINST
FORWARD
U.
EXCHANGE
RATES
1
S.'DOLLARS.
GERMAN MARK
PREMIUM*
-
Y
SWISS F R A N O ^ -
•OUND STERLING
DISCOUNT1
1
iAGAINSt
1
1
1
POUND
1
u
1
1
i i
STERLING"LONDON
U.S. D 0 U A 6
AGAINST
POUND
STERLING
-
LONDON
FRENCH FRANC A
DISCOUNT-;
r
1
i
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I I
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@FedFRASER