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OIVBION O> iNYKRNATIOMA L FttfAMCE L -'' | H 13 U No# 29,v ' ! " L j l " V I .d BOARD OF SOVMNOM OF THE FEDERAL RESERVE SYSTEM | October 13, 1961 .. :...idwTAL W M I « y i l U B P I E i g $ A B 8 f i ^ I. II. I. Canadas Canada Nine Charts on Financial Markets Abroad Money and Capital Markets During September During September, Treasury bill rates rose about 30 basis points but bond yields were virtually unchanged in Canadian markets. This reversal in bill rates appears to reflect some caution on the part of the monetary authorities following the considerable expansion in credit availabilities in recent months. The chartered banks were sellers of bills but did add substantially to their holdings'of short bonds during the month. The Bank of Canada acquired bonds and some bills, probably in connection with the $200 million short bond issue delivered by the Treasury in mid-September. In the intermediate and long-term sectors, yields remained stable throughout the month. Similarly, yields in the corporate and local government sectors of the bond market were practically unchanged* The commercial banks continue to enjoy a liquid asset ratio almost U percentage points above the required minimum. During the month* bank loans continued to expand (after allowing for seasonal factors) but the rate of increase was much below the unusually heavy expansion during August, The Canadian dollar continued to hold at about 97 U.S. cents with only limited fluctuation during the month, The forward rate remained flat with the U. S. dollar for the eighth consecutive week. Money Marketo During September, Treasury bill yields rose about 30 basis points above. August lows. (See Table,) Pressures on the cash position of security dealers in connection with the delivery of a new Treasury bond issue accounted for a large expansion in day-to-day loans and led to dealer borrowings directly from the Bank of Canada. As a result, day-to-day loan rates rose 1*5 basis points from 1.95 to 2.W) per cent during the month. The average auction yield on the 3-month Treasury bill rose 33 basis points from 2=26 to 2*59 per cent and the 6-month bill yield rose 3U basis points from 2.55 to 2.89 per cento (See chart 1 and Table.) However, Canadian bill rates were still well below early June lows before monetary policy was shifted to active ease-9as the following rates indicates NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS ' NOT FOR PUBLICATION 3-#onth Treasury bill June 1 15 Aug. 31 Oct. 5 3.1k 2.60 2.26 2.57 6~month Treasury bill 3.30 2.75 2 0 55 2„8U The chartered banks reduced their Treasury bill holdings $58 million and the general public purchasei $ii0 million. The Bank of Canada cushioned demand pressures in the short credit sectors by purchases of $16 million of Treasury bills3 the Bank also advanced $22*5 million to dealers through re-sale agreements after the Treasury's new issue-had been delivered to the market. The rise in Canadian rates caused the spread between Canadian and US bill yields to widen to 3h basis points0 This widened the incentive to hold Canadian bills on a covered basis9 since the 3-month forward dollar continued to be about flat with the spot rate for the eighth straight week. Bond Market. Bond yields remained stable in both the Government and non-Government sectors during September. (See Table.) According to McLeod, Young, Weir, Ltd., non-Government bond yields averaged 5.U7 per cent on October 1 compared with 5»h5 per cent on September 1 9 and with 5,63 per cent in early June. The following table compares yield changes between June and October for these sectors of the bond markets June 1 10 10 10 10 1+0 Provincials Municipals Public Utilities Industrials Bond Yield Average Oct. 2 5.62 5.82 5.U8 5,60 5.63 5-38 5.60 5.39 5.L3 5.15 5oU5 5 063 5,?7 5.U2 5oii7 Yields on government bonds of longer maturities were also steady but rates on some shorter maturities declined slightly. Selected Canadian Government bond yields have changed since June 15 as. follows s Maturity Sept. 1965 Sept. 1972 Jan. 1975-78 Sept. 1983 Sept. 1996-98 June 15 U.63 U.98 5.Hi 5.10 5.08 Aug. 30 ii.39 It.83 5.oi 5.oi U.98 NOT FOR PUBLICATION Sept. 28 U.36 U.88 5.02 5.03 5.00 Oct. U U.29 U.87 5.01 5.02 5.00 NOT FOR PUBLICATION - 3 - With higher Canadian yields, the yield spread favoring Canadian Government securities over .comparable US securities widened during the month. However, yield differences for intermediate term securities are still significantly below mid-June differences, as noted in the following table i Sept. 28 8-year bond 20-year bond 35-year bond 0,1+7 0.91 1.2L Oct. I4. O.LS 0.91 1.23 Aug. 30-0ct. lt June l£-0ct.U +0.06 +0,02 +0.03 -0.L2 -0.2? -0.10 The Bank of Canada bought $14t million of bonds, the banks bought$72 million and the general public bought $1*2 million during the month. (See Table.) A. E. Ames and Co, estimated total new securities issued in September at $1,02U million. There were no offerings in the United States. On September 18, the Minister of Finance announced that the new Canadian savings bonds, dated November 1, 1961, will provide an average yield of li.60 per cent with a 10-year maturity. Interest will be payable at h-l/h per cent the first year, U-l/2 per cent for the next six years, and 5 per cent for the remaining three years. The yield to maturity for last year's savings bonds was U.71 per cent. The bonds may be cashed in at any time for full face value and accrued interest. The issue is available only for residents of Canada and the limit per buyer is $10,000, Total savings bonds held by the general public on October h were $3,U billion, about $U00 million over a year ago. Unemployment Insurance Fund Holdings. The Minister of Finance announced on October 2 that the Treasury had taken over the entire portfolio of the Unemployment Insurance Fund in exchange for non-marketable securities, This measure, announced in the Minister's budget speech last June 20, was designed to remove the threat of large sales of the Fund1s holdings at times of high unemployment which had had the effect of holding interest rates up at a time when the Bank1s activities were directed toward reducing interest rates. The Fund now holds $138.5 million of a non-marketable 3-3/U per cent Government of Canada bond. Some $99 million of the proceeds from the retirement of the Fund's holdings was used to repay the Treasury for outstanding advances to the Fund. Money Supply and Bank Loans. In September, general bank loans continued to rise more than seasonally but much less than in August. (See Table.) Outstanding seasonally adjusted loans were up $11 million in September to $5378 million. Chartered bank cash reserves rose $23 million and continued at 8.1 per cent of outstanding deposits; the liquid assets of the chartered banks rose $50 million and continued at almost 19 per cent NOT FOR PUBLICATION NOT FOR PUBLICATION - of deposits, well over the 15 per cent minimum requirements. I960, the average ratio was 16,8 per cent. h " In December The seasonally-adjusted privately-held money supply in September declined $1*3 million as a result of the new Treasury bond offering, but was still 5*8 per cent above December i960. The delivery of the new Government bond resulted in transfers of deposits from private to Government accounts and increased seasonally-adjusted Government deposits by $163 million• Together, private and Government holdings of currency and deposits rose $118 million in the month* Foreign Exchange. The Canadian dollar fluctuated narrowly around 97 U. S. cents during the month, In fact, the exchange rate has held unusually steady at this level since mid-June when the authorities announced their intention to use the Exchange Fund to reduce the value of the Canadian dollar. Official foreign exchange reserves rose $36 million in June, compared with the decline of $Ul million in July and August to support the Canadian dollar» Although there was heavy spot and forward trading in Canadian exchange markets shortly before and after the June 20 announcement, the market has been unusually quiet since that time. The 3-month forward rate on the Canadian dollar has held at the level of the spot rate since early August, (See Table and chart 1.) Stock Marketo During September5 weekly turnover reached highs for the year even though industrial stock prices declined. The Canadian index of industrial prices for the week ending September 21 was about 1 per cent below the end of August figure while the NY Standard and Poor industrial index fell by less than 1 per cent. The total value of trade in the Canadian exchanges rose to $12 0 2 million in the week ending September 21 and to $26.1 million in the week ending September 28, compared with an average of less than $8 million a week in July and August• Canadian and US industrial stock indicies moved as follows: Average for week ending, September 29, I960 June 15, 1961 July 27, 1961 August 31, 1961 September 21, 1961 DBS Industrials N.Y, Standard h Poor Industrials 2L3.6 329,7 331.8 3kk,l 3U0„2 55.69 69.55 70.U0 71.86 71.39 - British Commonwealth, Scandinavia and Near East Section, II, Nine Charts on Financial Markets Abroad — Chart 1 - Interest Arbitrage U.S./Canada Chart 2 - Interest Arbitrage New York/London Chart 3 - Interest Arbitrage New York/Frankfurt Chart U - Interest Arbitrage Frankfurt/London Chart 5 - Short-term Yields Chart 6 - Long-term Yields Chart 7 - Industrial Stock Indices Chart 8 - Major Currencies in Terms of Spot United States Dollar Chart 9 - 3-month Forward Rate--London Quotations NOT FOR PUBLICATION -.5 Selected Canadian Honey Market and Related Data 3-mo • Treas. bills Canada Spread n.sJz/ over U.S. I960 ~ High Low 1961 - High Low $olh 1,68 3.3k 2.26 lt.53 2,10 2 >5u 2,17 1.62 -0,82 1,10 -0,09 Aug, 30 Sept. 7 lU 21 28 Oct „ 5 2.26 2,31 2,36 2.L2 269 2.57 2,35 2,30 2.29 2:26 2.25 2,29 -0,09 0,01 0.05 0ul6 0c34 0.28 Canadian dollar discount ( - 1 3-mo, Spi forward p r e m i u m ( + W 105.27 100:33 101,72 96 81 0.99 -0.91 0 26 -0.56 _ Net incentive to hold Can. billS/ 1.99 -o„57 0.89 -0.20 96,97 96.9? 0,0 -0.09 c-.-.OO 97.00 0.0 0 01 97,03 97-00 0,0 0,05 97.06 97,05 0,-0 0.16 97,06 97,08 0.0 0.3k 97c08 97 08 0,0 0.28 a/ Average yield at weekly tender on Thursday. % f Composite market yield for the U.S. Treasury bill on Thursday close of business. 0/ In U.S. cents. d / Spread between spot rate and 3-month forward Canadian dollar on Thursday closing, expressed as per cent per annum. e/ Spread over U.S. Treasury bill (column 3)> plus 3-month forward discount or premium (column 6). Selected Government of Canada Security Yields 6-mo. Treas. bills Spread Canada ovegy 1960 - High 1,37 -0,85 Intermediate bonds (8_yr.) Spread c i r 5:55 109 a.75 L=39 a 1:11 0,21 1 16 0/25 Long-term bonds (20 year) (35 year) Spread Spread Ca^da Canada 0Te j / vTJ/ u.s 5^2 li.63 5,19 4,8$ 1.36" ."5.28 0.85 I1.68 1.U0. 5.23 0.88 L.92 1.61 0.95 1,59 1.14 Aug, 30 "0 11 b oh 5' 0..j9 a 93 0,89 k.98 Sept, 6 ^0.05 0,38 a,k3 L.,90 0.85 1.97 13 0.01 a,39' CL38 0.81 a.91 L.98 20 0,06 a,39 0, 39 L.92 0.85 k.98 27 0,21 LiMl 0.&7 0=91 a.95 5.00 Oct. k 0,2k 4 = 39 0.45' k,96 0.91 5.00 Average yield at weekly tender on Thursday. Spread between Canadian auction rate and composite market yield of U .1 on close of business Thursday. Government of Canada 2 - 3 A per cent of June 1967-68# Spread over U.S. Government 2-1/2 per cent of 1963-68. Government of Canada 3 - l A P° r oent of October 1979 • Spread over U.S. Government 3 - l A per cent of 1978-83. Government of Canada 3 - 3 A per cent of September 1996 - March 1998. Spread over U.S. Government of 199$ » 1.20 1.21 1.19 1.20 1.24 1.2^ 1961 - High Low J 1 '0.11 NOT FOR PUBLICATION - 6 - Canada: Changes In Distribution of Holdings of Canadian Government Direct and Guaranteed Securities (millions of Canadian dollars, par value) Bank of Canada Treas. bills Bonds 1961—Jan» Feb 0 Mar» April May June July Aug 0 Sept. Sources —Ul -7 -hi + 9 +17 -7U +69 0 +16 —38 -68 +120 +5? -22 +U3 +21 +21 +UI4. Chartered banks Treas. Bonds bills Government Total +15 -96 -25 - 2 - 1 + 5 +16 ^ +32 + 9 +111 + 67 - 36 - 70 -63 + 33 + 16 +107 - 58 - 37 + 88 '+ 50 - 52 + 2U + 62 + 11 +1U8 + 72 General public Savings Treas. bonds bills Bonds - 2 6 18 37 33 22 23 29 - 2k + + + U6 26 30 6U 80 7 95 87 ItO +23 +39 + 6 -12 + 1 +37 -37 -35 +U2 Bank of Canada, Weekly Financial Statistics• Selected Canadian Financial Statistics (in millions of Canadian dollars or per cent) 1. Money supply Currency and deposits Less: Govt„ deposits Equals: privately held Change in period 2, General bank loansa/ Change in period 3* Total Govt, securities 1 Of which 1 Treas » bills Bonds Savings bonds New security issues^/ Of which sold in U 0 S 0 April May __June^ July Augo 13,623 29 13,866 153 13,713 + 90 - 13,861 200 137551 52 Ik,011 179 13,832 + 171 11,368 312 lit,056 + 22U 1U,U86 U73 14,013 U3 5,207 2 5,22L + 17 5,252 + 28 5,269 + 17 5,367 + .98 5,378 + 11 ; 17,780 1,935 12,308 3,537 17,625 1,935 12,258 3,502 J 17,763 1,885 12,UoU 3A7L 17,739 1,885 12,102 3,L52 17,885 1,885 12,577 3^23 18,061 1,885 12,776 3,Loo 926 0 891 95 725 11 1,086 12 660 0 1,02a 0 13,876 % - 5» Chartered bank liquidity: Cash reserve 1.018 1,017 1,027 1,025 1,039 Cash ratio 8.1 "8.1 8.1 8.1 8.1 Liquid assets 2,226 2,170 2,312 2,317 2,115 Liquid asset ratio 18.3 17.3 180 3 I80 9 17.7 a/ Seasonally adjusted, b/ Source; A, E, Ames & Co.5 I/Ed, (Includes public and private securities„) Sept. 1,062 80I 2,k65 18.8 a J INTEREST ARBITRAGE, UNITED S T A T E S / C A N A D A ' T H R E E - M O N T H TREASURY BILL RATES U N H I D STATES •vV RATE DIFFERENTIAL A N D FORWARD C A N A D I A N DOLLAR SPREAD IN FAVOR Of CANADA + RATE DIFFERENTIAL W I T H FORWARD EXCHANGE COVER NET INCENTIVE IN FAVOR OF CANADA + • J 1959 D i960 J 1961 S INTEREST A R B I T R A G E , N E W Y O R K / LONDON 3 - M O N T H TREASURY BILL RATES LONDON* '-v\ 1 NEW YORK RATE D I F F E R E N T I A L A N D 3 - M O N T H FORWARD STERLING SPREAD IN FAVOR OF LONDON FORWARD KATE DIscoiii — 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 COVER IN FAVOR OF LONDON [IH M O I OF NEW YORK 3 INTEREST A R B I T R A G E , N E W Y O R K / F R A N K F U R T , Friday figures 3 - M O N T H TREASURY BILL RATES A N D 1 GERMAN 3-MONTH INTERBANK L O A N RATES } c»nl p» annum RATE D I F F E R E N T I A L A N D F O R W A R D D E U T S C H E M A R K ! I LOAN RATE z\A 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 IN FAVOR OF FRANKFURT C + ) IN FAVOR' OF NEW YORK H M ' r, f I960. Note Special forward dollar rale available lo German commercial bonks • J $ INTEREST ARBITRAGE, 3-MONTH — AND TREASURY LENDING FRANKFURT/LONDON BILLS R A T E S LOAN I A 1 E TREASURY I I U S R A T E DIFFERENTIAL AND FORWARD STERLING SPREAD IN EAVOR OF UNITED KINGDOM f l l Z S OVER: v \ 3-MONTH FORWARD STER1IHG PREMIUM+ OR DISCOUNT- RATE - DIFFERENTIAL WITH FORWARD EXCHANGE NtT lNCENTivE OF UNITED KiNGDOIA I l l t S OVER: * i *%/ 6EIHA1LUIIEMANII. 10AH RATE ^ l' COVER S H O R T - T E R M INTEREST RATES' * ,vn \, i X 1 '0. 1 1 E. 1 1 1 1 erfM X \ 1 L GH1AIIY ^~Oi /W\-YV" X r / V ' SWITZERLAND — — — • — JAPAN /'\ mAy yv / ./ CANAI i U " A « /X \&y f f 1 1 1 1 1 1 it i J—i— f A l ~ 1 V v v h /Tr IA yi t a |M/i f ww "V / EBLO-DOUAL - IOW0O* t v / 7\ 1 1 1 11 l-L.l.J.I I.I 3-month treasury bill roles for all countries except Japan (Jj-morth interbank deposit role) and Switzerland (l*moitfh deposit rate). 3-month rale for U. S. dollar deposits in London, I N D U S T R I A L STOCK I N D I C E S Tokyo •xchan0« M A J O R CURRENCIES I N TERMS OF THE S P O T ^ U S . DOLLAR] Above par - I T A L I A N LIRA /-Y-• Below par Above par 3 - M O N T H FORWARD RATES - LONDON QUOTATIONS _j r\ i PREMIUM + . n P«r c«nt p»r ~</r It |V\ U. S. D O l l A R DISCOUNT s D J X J.«v $ ft
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