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DiVIStON-OF-lMXERNATIONAL. FINANCE
LIBRARY
BOARD OF GOVERNORS
H-%
No. 126 ;v"
October 16, 1963,
CAPITAL MARKET DEVELOPMENTS ABROAD
I.
II.
I,
United Kingdom
Nine Charts on Financial Markets Abroad
United Kingdom:
Money and Capital Markets,.September 1963
After mid-September hesitancy, markets for short to medium-term
paper and for ordinary shares showed increasing firmness at the end of the
month and the first week in October, strengthened by good company earnings
reports and news of a continuing and broadening economic expansion. Substantial new issues were absorbed in a rising market and stock prices rose
in the week ending October h to the highest level since June 1961. Longerterm bond yields turned up late in the month.
Table 1.
United Kingdom: Selected money and capital market
yields and stpck prices, 1963
~
~~~
(in per cent per annum or index)
' JL_
Aug.
29
Sept •
12
'
Sept.
19
Sept.
26"
_ i
3.72
3.91
3.62
U.00
3.62
L.09
3.62
a. 06
3.5a
a.13
3. as
a.19
U.31
a.12
U.06
a.06
a. 31
a.19
3.65
5.00
5.50
5.53
5.39
3.7U
u.90
5.17
5.53
5.U0
3.70
a.83
5.U5
5.53
5.37
3.67
3.60
a.82
5.as
5.5a
a.81
5.as
5.38
a.82
5.as
5.58
5.a2
July
Monev-market yields
Treasury bills
U.S. dollar deposits
Local authority
deposits
Bpnd yields;
196U
1965-75
2008-12
War Loan
Consols
Oct.
3.57
5.57
5.a2
Share yield
a/
5.01
U.8U
U.8U
a.79
a.81
a.72
Yield gap
b/
0.38
o.UU
0.53
0.59
0.61
0.70
Share prices a/
a/
b/
311.6
32U.8
32L. 3
327.7
326.5
333.8
Financial Times
Difference between yield on 2-1/2 per cent Consols and share yield.
OFFICIAL USE ONLY
(Decontrolled after six months)
OFFICIAL .USE JULY
-
2
-
r
By early October, the net incentive for holding Treasury bills had
shifted in favor of the United States: the uncovered spread in favor of the
British bill was sharply reduced and the forward pound moved to a wider discount. (See Table 2.) However, the yield on Euro-dollar deposits continued
to exceed the yield on U.S. certificates of deposits by between 36 and £9
basis points.
Table 2.
Short-term U.S. and U.K. Yield Spreads, May-October, 1963
TREASURY BILLS (3-mo..)
United Kingdom
United States
Favor U.K.
3-mo. £ discount (-)
Net incentive
(in
per cent per annum)
September
20
13
May
17
July
19
August
16
2.88
3.69
3.15
3.62 3.62 3.62 3.62 3.5k
3.31 3.32 3.3U 3.38 3.3U
0.31 3.30 372% o ^ n X 2 0
-0.2U •
-0.03 -O.O3 -0.05 -0.1$
0.07 0.27
0.19 0:65
TM
-0.68 -0.30
0 0.2U
3-mo. YIEID SPREADS—Fully Hedged
^ l u s 3 5 T favor J T C I
——
Treasury Bills
0.2L
Time Deposits
0.6P 0.6L
Local Authority over
-0,09 -0.05
Euro-dollar
6
October
27
h
3.U8
3.12
oTo5
-0.20
-oTm
0.27 0,25 0.19 0.05 -C.16
o.ko 0.59 0 ^ 9 O.36 0.L3 o.L?
0.01 -•0.16 -0.06 -0.02 0.03 -0.22
0.07
Britain's external position remained favorable. Exports were wellmaintained between June and August and the trade deficit was only slightly
above the comparable levels in 1?62. (See Table o.) Official gold and
foreign exchange reserves increased by &22 million in September and the spot
pound, though fractionally below par, was firm throughout the period under
review. Because of heavy Russian sales, gold fixing prices were lower in
September than in August. (See Table 9.)
Money-market yields decline. The Treasury bill yield, which had
remained at 3.62 per c"nt from August 16 through September 20, fell eight
basis points on September 27 and a further 6 points to 3.LB per cent following the tender on those days. (See Taole 1 and Chart 2.) The discount
houses, having received a relatively low proportion of Treasury bills issued
an-Septembsr 20 and 27, raised their bid on October U and received £9 per
cent of the allotment. Treasury bills again appear to be in short supply\
the
government deficit is growing only slowly and the Exchequer is raising
funds with a new I4 per cent Exchequer issue of 1968,
In the Euro-dollar market, the three-month deposit rate increased
from U.06 per cent on September 20 to 1-.19 per cent on October h. This
increase has been attributed partly to a withdrawal of Canadian funds from
the market.
OFFICIAL USE ONLY
OFFICIAL USE ONLY
-
3
.
Local authorities short-term rates rose sharply at the end of
September but fell 12 basis points in early October after temporary endSeptember stringencies had passed.
Capital markets active. Yields on short and medium-term bonds
eased between September 5 and October 3 while yields on long-term and undated Government bonds rose somewhat. (See Table 1 and Chart 6;) Short
bond yields tended to move with Treasury bill rates while longer bonds
appear to have been affected by fears that the continuing expansion will
be accompanied by inflationary pressures. This hypothesis is supported by
the rise in stock prices at the start of October,
New issue activity from September 1 to October 3 at £82,8 million
was the highest total since June 1962. The new £ 20 million Australian
issue and the Mauritius and Centrovincial (a private issue) loans were over- x
subscribed, reflecting the good demand for intermediate dated paper*
Some £ 35.h million were for Government, and £ hi-h million for private uses.
Table 3»
United Kingdom:
Selected New Bond Issues:.
September 1 through October L, 1963
Date
September
October
6
18
23
30
2
3
Borrower
County Borough of Huddersfield
City of Manchester
Mauritius Government
Centrovincial Estates
Coupon Maturity
5 - 1 / w 197U-76
1971-75
5 - W
6-1/2% 1973-75
1988-93
--
Value
(£ ths.)
1,000
10,000
2,095
2,0U0
Australian Government
British Sidac
S-l/2%
$-3/h%
20,000
2,500
1981-82
1985-90
The size and composition of new issues altered in the first 9 months
of 1963, compared to the first 9 months of 1962: Government and Public
Authority issues fell £ 23.8 millions (a decline of ll' per cent based on the
first 9 months in 1962)5 similarly industry issues fell £ 10.8 millions, a
fall of 3.h per cent; the form in which industry has been raising funds
also has changed—equity issues over the 9-months comparison fell to £ 107
from £ 176 millions; but now loan capital rose tc. £ 179 m i n i m s from Z Ihl
millions.
The stock market was dull for the first three weeks of September,
but prices advanced rapidly during the remainder of the month, (See Table 10
and Chart 7.) In the week ending'October U s the Financial Times1 industrial
common stock index rose 7 points to 333.8, the highest level since June 15,
1961 and only 9 per cent below the all-time peak of 365.7 reached on May 15,
1961. With stock prices rising and the price of Consols falling slightly,
the yield gap favoring Consols rose to 70 basis points on October 3, continuing
the advance of the past several weeks. (See Table 1 0 J The recent rise in
stock prices after mid-September hesitancy is due to unusually good company
OFFICIAL USE ONLY
OFFICIAL USE ONLY
h
-
-
earning reports and generally favorable news about steel, autos, retail trade,
and export prospects.
Private credit expansion continues. Seasonally-adjusted net advances
of the London clearing houses rose by £ 30 million from mid-August to midSeptember-^unad justed advances to the private sector fell by £ 38 million, -while
loans to the public sector rose by £ 90 million.
Loans to nationalized industries fell by £ 13 million. (See Table U.)
Table U.
NET DEPOSITS
United Kingdom: London Clearing Banks,Net Deposits
and Selected Assets
(in millions of pounds)
C h a n g e s
a/
Outstanding
"
19 6 3
"
Sept. 27,
July
Apr. May
June
Aug. Sept. 1963
+II18
+106
+58
+3U
+33
-9h
6,791
SELECTED ASSETS
Claims on Public Sector
Government securities
Treasury bills and
call loans
Loans to nationalized
industries
+ 2
-20
-33 . + 3
+ 83
+30
+ 3
+21
+ 2
+90
+19
2,818
1,113
+28
+ 99
+1U
+11
+8U
1,617
Claims on Private Sector
Advances (net)
Commercial bills and
other
SEASONALLY AD JUSTED:
Net Deposits .
Net Advances
RESERVE RATIOS
Liquid Assets
Gash
a7
b/
-
h
-is
+
3
- Hi
+13
+ 8
-13
58
+31
+ la
T%2
+ 2*
+ 20
+52
752
- h
-38
1,293
3,879
+ 3
-
+
5
-10
-12
+ 6
hlh
-99
+U3
+1L8
+ U7
+ 6
+18
+32
+8U
30.5
8.1
30.7
8.2
31.6 31 oil
8.09 8.20
1
—
(n.a.) (n.a.)
+63 b/+30
(n.a.)
31.U 32 "1
8.1^ 7.91
—
Bank balance sheets are normally prepared for the third Wednesday of
each month.
Estimated by the Economist (October 7, 1963 ) using the Bank of England
seasonal adjustment method.
OFFICIAL USE ONLY
OFFICIAL USE ONLY
-5-
New unadjusted installment credit extended fell in August, but
the decline is regarded by the Board of Trade to be somewhat less than seasonal.
The higher level of installment sales which has prevailed since Spring has
been maintainedand possibly advanced slightly—in August, poinciding with
a sharp rise in seasonally-adjusted retail sales. (See Table 5.)
Table 5>. United Kingdom:
New Credit Extended; Index
(1957c100T
Household goods shops
Finance houses
Credit Outstanding (£ mns.)
Household goods shops
Finance houses
Total
Installment Credit, 1963 b !
C H A N G E S :
Apr.June Apr. May June
July
Outs tan*
Augus*
Aug. 1963
109
182
101
177
llU
201
111
169
122
189
llL
162
—
+2
+30
- 3
+10
+ 7
+3
+11
+IH
+2
+ 9
+2l
+2
+10
+1?
+ h
+ f?
+ 9
319
608
927
a/ Data are not seasonally adjusted
Source: U.K. Board of Trade
External developments continue favorable. The August trade deficit
(seasonally adjusted) fell sharply compared to July, owing to an expansion
of exports and a decline in imports. But the June-August average balance
shows little change from the second quarter» Fuel and industrial materials
imports remained steady from April through August at the level prevailing in
the third quarter of 1962. (See Table 6.) This may mean that U.K. investment
in inventories of these goods is not expanding at present. The Common Market
countries continue to be the major source of growth in exports.
OFFICIAL USE ONLY
OFFICIAL USE ONLY
Table 6.
United Kingdom: Foreign Trade
(in millions of pounds, seasonally adjusted monthly averages)
19 6 2
2nd
3rd
Qtr. Qtr.
June
- 53
zM
- U8
-373
320
12
-385
335
13
-395
315
3U5
13
-I1O6 -hOO
339
1h
-U19
351 3U8
13
13
-398 -U21
-138
-13U
-Ikl
-119
-118
-155
-1U5
(n.a.)
-186
- U9
-200
- 50
-200
- 5U
-201
- 5U
-199
- 53
-209
- 57
-200
- 53
(n. a.)
(n.a.)
Trade balance a/
(deficit-)
Exports, f.o.b.
Re-exports, f.o.b.
Imports, c.i.f.
of which:
Food , beverages,
and tobacco
Fuels and Industrial
materials
Finished manufactures(-)
1 9 6 3
2nd
Qtr.
320
June
Aug. Sept.
- hi
- 3U -„ 60
where imports are entered f.o.b., and insurance and freight are included
as non-commodi+-"- trade,
Source: U.K.
jf Trade
Official gold and foreign exchange reserves increased by $22 million
in September, a month when sterling is often weak. [See Table 7.)
Table 7.
GOLD AND CONVERTIBLE
FOREIGN EXCHANGE
Less: Central Bank
• loans a/
Less: U.S. Official
foreign exchange
operations b/
Adjusted Reserves
DRAWING RIGHT ON IMF
United Kingdom: Reserve
(in millions of U.S.
C h a n g e
Jan.- Apr.JulyMar.
June
Sept.
Position, 1963
dollars)
s
July
Aug.
Outstanding
Sept. 30>
Sept. 1963
+22
+20
-20
+22
+ 8
-101
+250
-250
+ 33
+ 18
+131
-17
+39
-25
+E5'
+ 8
^
—
+22
-
n.a.
- 1
- 5
n.a.-4,L39
—
8
a/
2,735
Loans received (+) from four Continental central banks in February and
March and repaid (-) in June.
b/ See the Federal Reserve Bulletin. September 1963, pp.
1219-20.
c/ As of August 31, 1963»
OFFICIAL USE ONLY
OFFICIAL USE ONLY
- Y -
The spot pound continues to move narrowly in the foreign-exchange
market, fluctuating between 279*73 and 279.87 cents from September 1 to
October U. The 3-months forward discount on the pound widened from .03 to
.22 per cent per annum. (See Table 9.)
The investment dollar premium has move in the range of 8 per cent
over September and the first week in October. The "securities sterling"
rate continues to fluctuate within a fairly narrow range, closing on October h
at $2.7875 asked.
Table 8.
United Kingdom:
Fixing Price for Gold Bullion
(In U.S. dollars per fine ounce)
July
5
12
19
26
35.089
35.085
35.081
35.086
August
2
9
16
23
30
35.091
35.097
35.097
35.096
35.112
September
October
6
13
20
27
35.080
35.079
35.079
35.067
u
35.077
The fixing price for gold declined steadily in September, falling
to $35,067 per ounce on September 27. The Bank of England acquired substantial quantities of gold which were offered by the Soviet Union on
September 3 and U and September 11 and 12. Demand *as weak in the first
week of September as the large Soviet sales unsettled the market. Strong
demand was experienced only on September 25, the week before the IMF annual
meetings. (See Table 8 above.)
OFFICIAL USE ONLY
Table 9.
United Kingdoms
Treasury Bill Yields and Exchange Bates
Treasury bill arbitrage calculation
-In favor
T T T T tf.S. litter- "13h*0,
pound
ence
U.K. bill
1962
1963
July
Aug.
High
Low
k.22
3.78
2.73
2.7k
5
12
19
26
3.72
3.72
3.69
3.69
3.01
3.19
3.15
3.18
2
9
13 .
20
27
3.69
3.29
3.62
3.62
3.62
3.62
3.62
3.62
3.2k
3.21
3.27
3.31
3.32
3.38
3.32
3.3k
3.38
3.3k
k
3.U8
3.U2
16
Sept,
Oct.
23
30
6
1.51
1.02
-0.31
-1.92
0.71
0.53
0.5U
-0.U9
-0.-U3
-0.30
o.2i
0.U8
0.32
0.31
0.28
0.2k
0.30
0.28
0.2k
0.20
0.06
0.7k
281.72
279.97
U.13
U.87
k.19
+0.22
280.12
280.11
280.02
280.Olt
3.91
3.9k
k.31
k.31
U.31
k.37
-o.ki
+0.10
+0.21;
-0.36
+0.12
-0.36
+0.12
—0 .ok
-0.36
-0.2k
k.06
U.00
+0.02
3.9k
k.00
k.00
k.19
k.09
k.06
k.13
k.31
k.31
k.19
k.12
k.12
k.06
k.06
k.06
k.31
-0.16
279.76
k.19
k.19
+0.17
+0.09
+0.27
-0.12
-0,03
-0.03
-0.02
-0.12
-0.22
3.a
280.0k
280.07
279.97
279.8k
279.80
279.78
279.73
279.7k
279.76
+0.07
-0.11
Spot
London deposit rates
pound
U.S.
Local
(U,S,
dollar
authority
cents) a/ (3-*o.)
+0.22
+0.19
3.9k
3.88
2ZCertified noon buying rate in New York for cable transfers.
Table 10.
United Kingdom:
Selected Capital Market Yields
U.K. Government band yields
2-1/2%
4-1/2%
3-1/2%
5-1/2$
3*
• 196k 1962-72 2008-12 War Loan Consols
1262
High
Low
2.82
3.90
Share
yield
Yield
gap
Share
prices
1.U2
-0.27
261.3
6.28
2.00
6.32
2.k2
6.77
k.80
6.27
2.21
2.12
2.78 .
2.00
2.20
2.20
2.20
2.20
2.20
2.23
2.27
2.28
2.27
2.26
2.21
-2.k9
2.21
2.23
2.22
2.23
2.39
2.k3
2.oo
1963
July
k
11
18
22
Aug.
1
8
12
22
29
Sept. 2
12
Oct.
a/
b/
19
26
3
3.62
3.72
3.77
3.72
3.81
3.79
3.77
3.76
3.7k
3.72
3.70
3.67
3.60
3.27 .
2.00
k.99
k.96
k.99
k.92
2.k2
k.90
k.91
k.90
2.k2
2.k2
2.k7
k.8l
2.k2
2.k0
2.k8
2.k8
k.88
k.83
k.82
k.82
2ok5
2.2k
2;28
2.27
2.k3
2.k2
2.k2
2.38
2.32
2.38
2.ko
2.3k
2.37
2.38
2.k2
2.k2
2.01
k.92
k.98
2.02
k.89
k.90
k.82
k.8k
k.77
k.8k
k.79
k.8l
k.72
0.38
0.k3
0.k8
O.kk
o.ko
o.k9
o.k2
311.6
312.3
316.2
312.6
312.7
321.1
0.k3
O.kk
320.k
32k.0
32k.8
0.23
0.29
0.61 0.70
329.3
32k. 3
327.7
326.2
333.8
0.27
Financial Times.
'
Difference between yield on 2-1/2 per cent Consols and share yield.
309.6
INTEREST
1
ARBITRAGE,
UNITED
ST A T E S • ' C A N A D A
Th u ridgy fig
13-MONTH
TREASURY
BILL
RATES
CANADA |
RATE
DIFFERENTIAL
AND
FORWARD
CANADIAN
{ S P R E A D IN F A V O R Of
DOLLAR
CANADA
\
| RATE
DIFFERENTIAL
WITH
FORWARD
EXCHANGE
COVER)
{ N E T INCENTIVE I N F A V O R O F CANADA *
nr
|J
id
rr
IS
-V
fir
f71
IT
fT:
INTEREST
AR BITRAGE,
NEW
YO RK / L O N DO N
Friday f i g i
13-MONTH
TREASURY
T
RATE
BILL
RATES
LONDON
DIFFERENTIAL
AND
3-MONTH
FORWARD
STERLING
1
C OVEF1
1
1
i
i
i .
L .. . 1 1
1
R A 1 FE D I F F E R E N T I A I L W I T H F O R W A R ID EX C H A N I G E
"
^
. 1 . J
I N f i V O * O f N E W Yl
1 1
M
1 1
J
1 1
$
iT
0
1 1
«
H40
1 1
J
1 L
S
1961
1 1
D
1 1
M
1 1
T
»
I..
i
I N f A v o e of
1 1
S
1962
1 1
D
1 1
'*
1 1
F
I |
1963
S
- i - k
D
ChorO
INTEREST
ARBITRAGE
FOR
GERMAN
COMMERCIAL
BANKS
*«o'
3-MONTH
-EURO
TREASURY
DOLLAR
BILLS,
DEPOSIT
INTERBANK
LENDING
RATE
RATES
GERMAN INTERBANK
~TToah i m
RATE
DIFFERENTIAL
AND
FORWARD
DEUTSCHE
MARK
S r i l A D IN F A V O R O f F R A N K F U R T :
^ F O R W A R D RATI
DISCOUNT"!—1
-.'INTERBANK LOAN RAT:
' . / ^ J v a ' V A
TREASURY BILLS
I 1 I I I I I I I I
RATE
DIFFERENTIAL
NIT INCENTIVE
WITH
FORWARD,
EXCHANGE
IN F A V O R OF F R A N K F U R T { + )
FBEASURY RILLS
*Nol»:
Speciol forword rot* avoilobl* to German commercial baoki
COVER
AND
INTEREST A R B I T R A G E
3 —MONTH
TREASURY
FRANKFURT
BILLS
AND
/
LONDON
INTERBANK
LENDING
RATES
UNITED KINGDOM TREASURY I I U S
JOAN
/X
RATE
DIFFERENTIAL
AND
RATE
,1
3 —MONTH
FORWARD
STERLING
S F R E A D IN F A V O R Of U N I T E D K I N G D O M SILLS O V E R :
J
n t
I
/ '
V
v '
-
\ X
x
GERMAN TREASURY BILLS
y —
G E R M A N INTERBANK LOAN RATE
RATE
DIFFERENTIAL
WITH
FORWARD
V
|
EXCHANGE
COVER
SHORT-TERM
INTEREST
RATES *
^ Zf"v
! —tltueo-coiui
\
- lOKpON-V
r\
u.
"X" 3-month trcotury, bill r o l e i lor oil countries e . c e p l Jopon
| and Swili.rlond (3-month d*poiil role) •
T
3-month rale I or U S dollar d e p o i u i in London
I A.eroge role on bonk loom ond d u c o u n l i )
v
A
V?
L O N G - T E R M B O N D YIELDS
7
vy
mi
INDUSTRIAL
STOCK
INDICES*
*95# = 1 0 0
Hollo ><al«
<00
350
300
Ml
100
J"
I I I I I I I I I I I I I I I I I I I I I I 1 I I I 11.1 I I I IS O I I I I I I I
450
400
350.
300
IktkU
ISO
ISO
CANADA
Too
.1.1.1
mo 1
• Note: [Japan:
**
mf
,nd»x of 22 5 industrial a nd other »lock» traded on ihe
New series:
mi
I I I I I
ms
Tokyo o c h g n g i .
Swiss Bank Corporation Industrial Stock Index.
1 1 1
SO
0
S P O T E X C H A N G E RATES - M A J O R
CURRENCIES A G A I N S T U . S . DOLLAR
I f l G I A N FIAMC
ITALIAN I I I A
j
F
M
A M
J
J
A
S
0
1961
N
0
J
> V V M
J
J
19*2
A
$
0
N
D
J
F
M
A
tk
j
J
1963
A
S
O
N
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3-MONTH
AGAINST
FORWARD
U.
S.
EXCHANGE
RATE
DOLLARS
— SWISS FUNC
:
\
/
AGAINST
AGAINST
POUND
POUND
STERLING
STERLING
-
-
—("
POUND STEIUNG
LONDON
LONDON
^ T X < i
@FedFRASER