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DIVelOH OF INTERNATIONAL FINANCE -3 1561 eOANO OF e 0 V E * N 0 * » OF T H E 1 September 1 5 , 1961 CAPITAL MARKET DEVELOPMENTS ABROAD I . United Kingdom I I . Nine Charts on F i n a n c i a l Markets Abroad I . United Kingdom: Money and Capital Markets during August Y i e l d s i n B r i t i s h money and c a p i t a l markets were maintained i n August a t around the h i g h l e v e l s , reached a f t e r t h e r i s e i n Bank r a t e from 5 t o 7 per c e n t on July 23>. There was some tendency f o r r a t e s t o e a s e s l i g h t l y i n e a r l y September, Since y i e l d s of undated B r i t i s h Government s e c u r i t i e s turned down i n e a r l y August, the y i e l d curve has remained p r a c t i c a l l y f l a t , with Treasury b i l l s a t 6 , 6 5 per cent and War Loan a t 6„68 per cent on September 8 . D e s p i t e the h i g h p r e v a i l i n g r a t e s , the v a l u e of new c a p i t a l i s s u e s was s h a r p l y i n c r e a s e d i n July* The d e s i r e of B r i t i s h i n d u s t r y t o meet i t s c a p i t a l needs without being s u b j e c t t o the i n c r e a s i n g c r e d i t r e s t r a i n t s on the banking s e c t o r c o n t r i b u t e d t o new i s s u e a c t i v i t y . Evidence of the July 25» c r e d i t r e s t r a i n t can be seen i n the g r e a t e r than s e a s o n a l d e c l i n e i n outstanding l o a n s t o the p r i v a t e s e c t o r of the London c l e a r i n g banks between mid-July and mid-August» However, i n s t a l l m e n t c r e d i t outstanding continued i t s s t e a d y r i s e f o r the f i f t h month i n s u c c e s s i o n and reached i t s a l l - t i m e high i n J u l y , The former peak was i n July I960* During August, the spot pound rose n e a r l y 2 U,S, c e n t s and o f f i c i a l r e s e r v e s i n c r e a s e d e The improved tone i n the f o r e i g n exchange market probably r e f l e c t e d the covering of s h o r t p o s i t i o n s by t r a d e r s and perhaps a l i m i t e d i n f l o w of investment funds from c o n t i n e n t a l Europe<» The July 2£ a u s t e r i t y program seems t o have h a l t e d the o u t f l o w of funds from London but no appreciable r e t u r n f l o w i s y e t e v i d e n t , d e s p i t e record London y i e l d s e Even though London b i l l r a t e s have been s u b s t a n t i a l l y above t h o s e i n New York, t h e r e has been l i t t l e i n c e n t i v e t o move funds from New York t o London because of the wide d i s c o u n t on 3-month forward pounds o Greater i n t e r e s t developed i n the London b u l l i o n market during August as the p r i c e of gold r o s e from $35>»lU t o j u s t over $35>.20 per f i n e ounce on September 3li. The demand f o r gold i s reported t o be mainly from t h e Far East and t o a l e s s e r e x t e n t from the Middle East and Western Europe. Money market. Y i e l d s i n the London money market receded s l i g h t l y a f t e r mid-August» The y i e l d on the B r i t i s h 3-month Treasury b i l l eased from a high p o i n t of 6.7U per c e nt on August 11 t o 6»65 per c e n t on NOT FOR PUBLICATION DECONTROLLED AFTER SIX MONTHS r NOT FOR PUBLICATION - 2 - September 8 ( s e e Table and Chart 2)» A s i m i l a r d e c l i n e i n the U.S. b i l l y i e l d kept London r a t e s about L«30 per c e n t above those i n New York, However, the i n c e n t i v e t o move funds t o London on a covered b a s i s remained small (below o n e - h a l f per c e n t ) because of the s u b s t a n t i a l d i s c o u n t on forward s t e r l i n g . Government s e c u r i t i e s market 0 A f t e r reaching record peaks i n e a r l y August, y i e l d s on undated B r i t i s h Government s e c u r i t i e s f e l l sharply ( s e e Table and Chart 6)» They r o s e s l i g h t l y l a t e i n the month but turned down a g a i n i n t h e f i r s t h a l f of September, I n i n t e r m e d i a t e m a t u r i t i e s , y i e l d s were steady through l a t e August and e a r l y September„ In shorter m a t u r i t i e s , y i e l d s r o s e throughout August but then tended t o ease i n September„ General r i s e i n money r a t e s „ The g e n e r a l l e v e l of money r a t e s continued t o a d j u s t t o the high Bank Rate, The i n t e r e s t on Tax Reserve C e r t i f i c a t e s subscribed a f t e r August 12 w i l l be 3 . 5 per cen t compared w i t h 3 per c e n t p r e v i o u s l y * On the same day, t h e r a t e of i n t e r e s t f o r new l o a n s t o farmers was i n c r e a s e d by the A g r i c u l t u r a l Mortgage Corporation t o 7 , 5 per cent from 7 per c e n t . The r a t e was formerly r a i s e d t o 7 per cent from 6 , 5 per c e n t on July 20„ Building s o c i e t y r a t e s were maintained i n August a t t h e higher l e v e l announced i n June. Second-quarter f i g u r e s f o r a l l b u i l d i n g s o c i e t i e s show t h a t new s a v i n g s d e c l i n e d by £ 1 , 7 m i l l i o n and withdrawals i n c r e a s e d by £ l o 3 m i l l i o n over f i r s t - q u a r t e r returns» As a r e s u l t , n e t r e c e i p t s t o t a l e d £35 m i l l i o n compared w i t h £38 m i l l i o n i n the f i r s t q u a r t e r . Further p r e s s u r e s on the resources of building s o c i e t i e s are l i k e l y t o develop as competing r a t e s f o r small s a v i n g s respond t o the J u l y 25 r i s e i n Bank R a t e , Evidence of the i n c r e a s e d competition f o r small s a v i n g s i s r e f l e c t e d i n the sharp d e c l i n e i n August and e a r l y September i n n e t r e c e i p t s of t h e Government's N a t i o n a l Savings Movement as r a t e s on competing media have proved more a t t r a c t i v e » While n e t saving between A p r i l 1 and July 28 was £1*1.7 m i l l i o n , i n the f o l l o w i n g s i x weeks t o September 8 n e t saving f e l l by £ 1 7 . 5 m i l l i o n . In c o n t r a s t , between l a t e July and e a r l y September l a s t year n e t savings r o s e s l i g h t l y by £8 m i l l i o n , Insurance companies, In response t o a r e q u e s t from the Bank of England, B r i t i s h insurance companies are to reduce t h e i r advances, p a r t i c u l a r l y f o r property developments Other o u t l e t s f o r insurance company c a p i t a l w i l l , however, be r e s t r i c t e d o n l y by market forces,, These i n c l u d e underwriting of new c a p i t a l i s s u e s , p e r s o n a l and p r o f e s s i o n a l l o a n s and long-term f i n a n c e t o enable repayment of short-term loans t o a bank* New c a p i t a l i s s u e s . New c a p i t a l i s s u e s (excluding Treasury o p e r a t i o n s ) during the f i r s t seven months of 1961 t o t a l e d £UU8a7 m i l l i o n , by f a r the l a r g e s t t o t a l of r e c e n t y e a r s . Nearly a quarter of t h i s was NOT FOR PUBLICATION NOT FOR PUBLICATION - 3 - i n July i n -which new c a p i t a l i s s u e s of £108.9 m i l l i o n were f l o a t e d . Much of t h i s y e a r ' s increase, concentrated mainly i n the May-July p e r i o d , r e f l e c t s the e f f o r t s of B r i t i s h industry to obtain financing outside the banks which are under an i n c r e a s i n g l y t i g h t c r e d i t r e i n . Total new i s s u e s were broken down as f o l l o w s ( i n m i l l i o n s of pounds) F i r s t seven months 1958 1959 I960 1961 U.K. Overseas Total 199.2 268.9 296.0 1(13.6 39.5 32.lt 31.7 35.1 238.8 301.3 327.7 Ui8.7 London c l e a r i n g banks. Advances of the London clearing banks t o the private s e c t o r f e l l sharply i n the month to mid-August by £108 m i l l i o n , the l a r g e s t drop since September 195#, While the f a l l was influenced by seasonal f a c t o r s , i t r e f l e c t s e f f o r t s by the banks e a r l i e r i n the year t o reduce t h e i r present and future commitments. A further c a l l - u p of £38 m i l l i o n was made t o Special D e p o s i t s . Sales of B r i t i s h Government s e c u r i t i e s were n e g l i g i b l e a t £2 m i l l i o n . Liquid a s s e t s f e l l by £23 m i l l i o n but the l i q u i d i t y r a t i o remained unchanged a t 32.9 per cent because of the f a l l i n gross d e p o s i t s . Installment c r e d i t . Installment c r e d i t rose sharply i n July, apparently i n the expectation of a general increase i n i n d i r e c t taxes or i n installment c r e d i t controls as part of the Government's a u s t e r i t y measures expected i n July. The increase i n installment c r e d i t outstanding by £11 m i l l i o n t o £968 m i l l i o n again was wholly accounted for by the debt owing d i r e c t l y to finance houses (mainly for motor v e h i c l e f i n a n c e ) . Recent f i g u r e s of installment c r e d i t outstanding are ( i n m i l l i o n s of pounds) Household goods s t o r e s 1959 - July I960 - July December 1961 - May June July 273 332 325 306 306 306 Finance houses Total 1x69 7k2 639 610 6U3 651 662 961 935 9U9 957 968 Change + 219 - 26 + lU + 8 + 11 Exchequer r e c e i p t s arid payments. The Exchequer's d e f i c i t above the l i n e f o r the f i r s t f i v e months of f i s c a l 1961-62 was £212 m i l l i o n compared with £282 m i l l i o n a year ago. Revenue increased by £271 m i l l i o n and Expenditure by £201 m i l l i o n from the previous year. Below-the-line d e f i c i t , a t £231 m i l l i o n , was £39 m i l l i o n larger than during the corresponding period l a s t year. The o v e r - a l l d e f i c i t was thus £UU3 m i l l i o n , £31 m i l l i o n smaller than a year ago* NOT FOR PUBLICATION NOT FOR PUBLICATION - U- Foreign trade, B r i t i s h exports i n J u 1 y seasonally adjusted continued at about the June l e v e l . In the 3-month period May-July 9 . s e a s o n a l l y adjusted exports were only 0»5 per cent higher than in the preceeding three months„ However, s e a s o n a l l y adjusted imports declined 2 , 5 per cent between May-July and February-April. Lower imports sharply reduced the trade d e f i c i t below the f i r s t - q u a r t e r l e v e l o Recent monthly averages of seasonally adjusted trade f i g u r e s ( i n m i l l i o n s of pounds) are: Exports Reexports Imports Trade balance i960 296 12 380 - 72 1961 - I 12 - 6k 309 385 II - h2 307 362 13 May 28) 12 - 70 365 June - 21 15 367 331 July 16 307 - 31 35U Aug* (prem„) 32U - 22 15 361 Foreign exchange reserves* Foreign exchange reserves rose sharply i n August» After excluding s p e c i a l c a p i t a l payments and r e c e i p t s and the I.M.F. drawing^"'the press estimate an i n f l o w of between £3U and £61 m i l l i o n . This i n f l o w appears t o r e f l e c t the covering of short p o s i t i o n s by traders following the July 25 measures to support s t e r l i n g -and some i n t e r e s t i n B r i t i s h bonds» The t o t a l r i s e i n reserves of £369 m i l l i o n included the £518 m i l l i o n drawing from the International Monetary Fund and an unknown i n f l o w from a transaction i n which France purchased s t e r l i n g to repay some part of her £27 m i l l i o n f i n a l payment to the nowdefunct European Payments Union, O f f s e t t i n g these two inflows was a £200 m i l l i o n payment to several major European central banks f o r their a s s i s t a n c e in-supporting s t e r l i n g e a r l i e r i n the y e a r , and a £10 m i l l i o n payment to Germany f o r debts incurred under the EPU. Overseas s t e r l i n g h o l d i n g s . Overseas s t e r l i n g holdings declined again i n the second quarter to £Lj^257 m i l l i o n from £US2?2 m i l l i o n i n the f i r s t quarter and the high of fil4.jl4.36 m i l l i o n i n the fourth quarter of 1960« A l l regions of the nonsterling area reduced t h e i r s t e r l i n g holdings i n the second quarter. This f a l l has been i n progress since the fourth quarter of i960 i n a l l regions except Western Europe, which reached i t s peak i n the f i r s t quarter of 1961 and r e f l e c t s the increase i n , . o f f i c i a l holdings under the Basle agreement« After declining since the second quarter of I960, s t e r l i n g holdings of the Overseas S t e r l i n g Area rose sharply i n the second quarter of 1961. Part of t h i s r i s e may be seasonal <> Recent movements i n overseas holdings of s t e r l i n g are as f o l l o w s (in m i l l i o n s of pounds)1 NOT FOR PUBLICATION NOT FOR PUBLICATION End of period Total March" I960 U,180 June I960 Sept. I960 Dec. I960 March 1961 June 1961 + + + - Nonsterling area Other Western North countries Europe America Rest of sterling area Nonterritorial organizations U08 2,670 688 58 356 Change 295 72 89 16U 15 + 33 + h2 + 170 - 160 - 29 + + + + - 81 1U3 67 U8 85 + h + Ui + ii - 19 - 61 + k - 97 - 97 - 37 + 161 + - 27 57 5 U 1 Foreign exchange r a t e s . The s t e r l i n g spot r a t e f l u c t u a t e d narrowly about 280*50 U.S. cents during most of August but by e a r l y September i t strengthened to about 2 8 l c 2 0 U.S. c e n t s , This strengthening i s reported to r e f l e c t commercial i n t e r e s t rather than a movement of c a p i t a l f o r investment purposes. A s u b s t a n t i a l inflow of funds to London on a covered b a s i s seems u n l i k e l y as long as the per annum discount on 3-months forward s t e r l i n g holds at about the h per cent l e v e l which has prevailed since l a t e July. Bullion market. After remaining about steady i n l a t e Julye a r l y August, the d o l l a r equivalent of the f i x i n g price of gold increased f u r t h e r through September 111, t h e r e a f t e r d e c l i n i n g s l i g h t l y , • April 7 May 5 June 2 July 7 August 11 September Ik Fixing p r i c e (in dollars) 35,0779 35,0673 35.0739 35.0951 35,1517 35.2019 Stock market. A f t e r r i s i n g sharply i n e a r l y August, i n d u s t r i a l p r i c e s on the London stock market f e l l back i n the second week of the month to the July l e v e l s (see Table and Chart 7 ) . The market d r i f t e d s l i g h t l y lower l a t e r i n the month but by e a r l y September p r i c e s strengthened somewhat. B r i t i s h Commonwealth S e c t i o n . I I . Nine Charts on F i n a n c i a l Markets Abroad I n t e r e s t Arbitrage U.S./Canada I n t e r e s t Arbitrage New .York/London • I n t e r e s t Arbitrage New York/Frankfurt • I n t e r e s t Arbitrage Frankfurt/London Short-term I n t e r e s t Rates Long-term Bond Yields Industrial St?ck Indices Major Currencies i n Terms of Spot United S t a t e s Dollar Chart 9 - 3-month Forward Rate—London Quotations Chart Chart Chart Chart Chart Chart 6 United Kingdoms 3-mOo Treasury b i l l , DifferU o K j / UoSoS/ ence ill Date I 9 6 0 - High Low 1961 - High Low 5.68 2.13 6o?U k.17 k.95 2.08 2.52 2.16 3 063 •=0 .8k k.k2 1.88 (p).6k 2.33 L.36 0.79 J u l y 1k 21 28 Aug. h 1118 25 Sept. 1 8 Uo57 k.63 6,69 6.71 6.7% 6.71 6.70 6.70 6o65 2.20 2ol6 2.2k 2.29 2.kk 2.17 2.3k 2,32 2.31 2.37 2.U7 k.k2 U.U2 a.30 k.2k a.36 k.32 k.3k 3.82 2.99 k.07 k.00 ko07 #.11 3.82 3.93 k.01 a/ b/ c/ d/ e/ f/ - Treasury B i l l Y i e l d s and Exchange Rates 6 - Exchange r a t e Net Spot Discount incentive on 3-mo. t o hold . . sterling ®Z sterling*/ U.K. b i l l * / 1.92 - .23 1.13 -2.12 -1.U8 -0.22 0,38 0.U2. 0.23 0,13 0.21 ' 0.k2 0.33 281.28 279.83 281.07 278.47 1.6k (P).U7 3.0U 0.55 278.17 278.17 279.28 280.18 280.3k 280.30 280.29 280.28 281.07 2.68 2.08 2.8k 2.80 2.85 2.88 2.70 2.76 2.82 Average y i e l d a t Friday weekly tender*. Closing market y i e l d f o r Friday i n New York, Spread between spot and forward r a t e i n per c e n t per annum0 Net of d i f f e r e n c e i n b i l l y i e l d l e s s d i s c o u n t on 3-month s t e r l i n g 0 Spot r a t e i n New York market i n U„So c e n t s . Spread between spot and forward r a t e s i n U . S . c e n t s „ - United Kingdoms S e l e c t e d C a p i t a l Market Y i e l d s Share yield®/ 6-year bond5/ 12-year bond®/ War loan®/ I960 - H i g h Low 1 9 6 K - High Low 6 oil a,93 6,68 2.92 6.00 2.33 6.76 2.97 2,9k 2„33 6.92 2.92 2.70 2.02 6,78 2*70 k.96 3.7k 2.1k k.22 l.k9 0.63 1.90 0.97 J u l y lit 21 " 28 Aug. k 11 18 22 Sept. 1 8 6.37 6.31 6,22 6,65 6.62 6.63 6.68 6.61 6.60 6elt8 6.k7 6.52 6.62 6.736.73 6,76 6.7k 6.75 6.71 6.62 6.72 6.92 6.72 6.71 6.77 6.66 6.68 6.23 6 .kk 6.27 6.78 6.26 6.21 6.60 6,kk 6.L2 2.13 2.01 2.1k k.88 2.ok 2.08 2.11 5-10 2.03 l.ko i.k3 l.k3 1.90 1.22 l.k3 i.k9 1.3k l.k2 Consols a / 5 - 1 / 2 per cent Exchequer, 1966. 1>/ 3 per cent Savings Bond 1962-72 <» "c/ 3 - 1 / 2 per c e n t War Loan (undated) . d / 2 - 1 / 2 per c e n t Consol (undated) e / F i n a n c i a l Times. T / JJirrerence between y i e l d on 2 - 1 / 2 per c e n t Consols and share y i e l d , g / F i n a n c i a l Times. Share pricesjg/ S g - 228.6 29k.6 362.3 306,2 306.2 313.8 307.3 328.6 313.3 311.0 308.7 309.2 313.7 INTEREST A R B I T R A G E , UNITED S T A T E S / C A N A D A Thursday f i g u r e i THREE-MONTH TREASURY RATE D I F F E R E N T I A L A N D BILL R A T E S FORWARD CANADIAN DOLLAR S H t A O IN FAVOR OF CANADA + RATE DIFFERENTIAL W I T H F O R W A R D EXCHANGE COVER M i l INCENTIVE IN f A V O I OF CANADA " f M S D M $ 1 INTEREST A R B I T R A G E , NEW YORK / LONDON Fridoyfigurai 3-MONTH TREASURY BILL RATES w RATE D I F F E R E N T I A L A N D 3-MONTH FORWARD STERLING S P R E A D IN F A V O R Of L O N D O N roeVtARD RAII Dlnoeet — .. 1 I RATE D I F F E R E N T I A L FORWARD WITH EXCHANGE 2 IN F A V O R OF I O N D O N COVER IN FAVOR OF N E W Y O R K 1959 1961 INTEREST A R B I T R A G E , Friday figure* 3-MONTH GERMAN NEW YORK/FRANKFURT , T R E A S U R Y ~BILL R A T T s " T N ^ 3-MONTH INTERBANK LOAN RATES ' P»r t e n l p e r INTERBANK I O A N R A T E — l / ~ V RATE D I F F E R E N T I A L A N D FORWARD DEUTSCHE MARK \ INTERBANK 1 L O A N RATE Ll^-xl a RATE D I F F E R E N T I A L W I T H FORWARD EXCHANGE COVER IN F A V O R OF F R A N K F U R T ( + ) M 1 * J p 1960. Note: Special forward dollar rale available 'Hi IP. 1961 lo German commercial banks. j $ p I N T E R EST A R B I T R A G E , F R A N K F U R T / L O N D O N 3 - M O N T H T R E A S U R Y BILLS -— A N D L E N D I N G R A T E S — : TREASURY BILLS UNITED KINGDOM ~ TREASURY RILLS RATE D I F F E R E N T I A L A N D FORWARD STERLING SPREAD IN FAVOR OF UNITED KINGDOM BILLS OVER: GERMAN \ INTERBANK \ L O A N RATE 3 - M O N T H FORWARD STERLING PREMIUM+ OR D I S C O U N T - RATE D I F F E R E N T I A L W I T H - FORWARD NET INCENTIVE OF UNITED KINGDOM BILLS OVER: GERMAN I960 EXCHANGE COVER SHORT-TERM INTEREST RATES* * GtRKANY .CANADA J _ 1958 ^ 1959 1960 1961 3-monlh Ireoiury bill ralei for all couniriei ekcepl Japan (3-monih interbank deposit role) ond Switzerland (3-month depoiil role) "j" 1Tmon«U »«*«- w a s . <b>Uat rfeonmi in London y v • L O N G - T E R M B O N D YIELDS I n <•"» " V 1 : CIRMAMT a ^ 4 \ z / / ^ "XV - J " 5 V tl.t. 4 f-\0r S / \ y v l .1. 1 - 1 - J - L 1 . . I I.. i .1. i A/ ] M5«v i i I I i i i i. . i i i i i i L i izxyx I 5 INDUSTRIAL STOCK INDICES * 1958 = 100 350 SWITZERLAND / 200 150 1958 1960 MAJOR CURRENCIES IN T E R M S O F THE S P O T U . S. DOLLAR] -'VI GERMAN HARK Below A par \ < f 3-MONTH F O R W A R D RATES - L O N D O N QUOTATIONS, / PREMIUM + S W I S S FRANC l V \ PREMIUM + FRENCH FRANC / v-\ I960 1961 r\ K
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