Full text of H.16 Capital Market Developments : December 5, 1960

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Cc^utU

t^*UJb

-

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Not for Publication

DECONTROLLED AFTER SIX MONTHS

H.lU

December 5, I960.
CAPITAL MARKET DEVELOPMENTS
IN THE UNITED STATES AND CANADA
(Including Review of Recent Developments
in Money and Capital Markets in Japan)
Part I - United States

Last week the volume of new public security financing was
moderate. No large corporate security issues were sold publicly. Two
large State and local government bond issues with par value of $30 million were publicly offered and IHMA sold a #100 million six-year note
issue. This week new financing will be substantial. Four corporate
issues with proceeds of $200 million are scheduled for public offering
and two large State and local government bond issues, with par value of
$23 million are on the calendar.
Bond yields - Yields on most types of outstanding long-term
bonds rose last week. The increase was Email, however, and did not occur
in yields on lower-grade State and local government obligations.
Short- and intermediate-term interest rates - Yields on
Treasury bills declined slightly last week while yields on intermediateterm Government obligations increased. Other principal short-term
interest rates were unchanged.
FNMA secondary market operations - Secondary market operations
of the Federal National Mortgage Association during October continued
to reflect some further easing in residential mortgage markets. Offerings of mortgages to FNMA and FNMA purchases declined further while
FNMA sales edged up.
(Note.—Under its secondary market operations, FNMA's recent
step to issue standby commitments for purchase of mortgages on existing
housing applies only to 1- to U-faraily properties. It does not include
multifamily units, contrary to what was incorrectly stated in this
report dated October 31.)
December new security financing volume - Sales of corporate
securities to raise new capital in December are expected to total $900
million, somewhat above the estimated November volume but the same as
a year earlier. Takedowns of privately placed securities are expected
to be in large volume as they are usually this time of year. This
December volume of financing will bring the i960 total to $9.7 billion,
$0.3 Dillion larger than last year but below the level of financing of
tEe three preceding years.




-3State and local government bond sales in December are expected
to total about $U50 million on the basis of currently scheduled offerings.
This is slightly more than the revised November estimate but about the
same as in December last, year. State and local government bond sales
for the year would then total about $7«li billion, about 5 per cent less
than the volume of new financing in 1958 and 1959.
Stock prices - Stock prices, as measured by Standard and Poor's
index of 500 stocks, declined slightly last week, closing on Friday at
55.39. Trading volume, averaging 3»h million shares a day, was somewhat
heavier than a week earlier.
More detailed information concerning recent capital market
developments is presented in the attached exhibits.
Developments in the Canadian capital markets are presented
in Part II at the end of this report. A review of recent developments
in money and capital markets in Japan is presented in Appendix 1.

Capital Markets Section,
Division of Research and Statistics,
Board of Governors of the Federal Reserve System.




L O N G - T E R M B O N D YIELDS

HIGH-GRADE




/

/vf

U.S. G O V E R N M E N T

y\

Exhibit B - Tables for Exhibit A
Long-term Bond Yields
High-grade

li.llt

Date

Corporate
Aaa 1/

U. S. Govt,
long-term 2/

2.85 ( V 2 3 )

2.h$ (8/6)
3.76 (10/18)

-5-

Spread between
U. S. Govt, and
Corporate State and
Aaa
local Aaa

State and
local govt.
Aaa y

(Per cent)
1951 - Low
1957 - High
1958 - Low
1959 - High
Low •
I960 - High
Low
Nov.
Nov.
Nov.
Nov.
Dec.

1*
11
18
25
2 2/

lt.Ut (9/27)
3.55 (5/2) x
li.6l (12/31)

1.09 (1/9)
it. 61 (I/29)

it. 23 (9/9)
It. 30

1.90 (9/2)
3.1*5 (8/29)
2.64 (5/1)
3.65 (9/21)

3,07 ( V 2 5 )
4.37 (12/31)
3.83 (1/2)

U.lt2 (1/8)
3.75 (8/5)

3.53 (1/7)
2.99 (9/1)

3.16
3.16
3.12
3.12
3.lit

3.90
3.92

3.9lt
3.97

.30

.17

.22
.50
.16
.59
.19

3.06 (3/26)

3.91

ii.29

ii.30
it. 32
It. 33

•30
.60

•34

.92

.53
.92
.53

.bo
.38
.38

.7it
.75.80

.82
.83

.38
. .36

Lower-grade
Date

Corporate
Baa y

State and
local govt.
Baa 2 /

Spread between
Aaa and Baa
State and.
Corporate
local govt.

(Percent)
1954 - Low

1957 - High

1958 - Low

1959 - High
Low
1960 - High
Low
Nov.
Nov.
Nov.
Nov.
Dec.

it
11
18
25
2 2/

j;r

3.Wt (12/31)-

2.93 (6/5)

$:8

2 : 1 1 1
3.92 (3/26)

.52
1.27
.77

.96
1.21

III

ill
.8it
.71

1.08

it.98 (9/9)

it.it6 (1/7)
it.05 (9/1)

5.10
5.08
5.07
5.08
5.10

it.li
it.li
4.07
it. 07
it.07

.80
.79
.77
.76
.77

$

K S '

5.36 (2/12)

^

.79

.92

-

.95
.95
.93

p/ Preliminary.
V Weekly t n r m ef dally figure e. Average term of bgads 1 Deluded le 26-26 years.
2/ Weekly average ef dully figures. The series 1 Deludes beads due or callable ID 10 years or mere.
3/ Tburutey figures. Oaly general obllgatleabonde are 1 Deluded, average term la 20 years.
Met*.—M«he Bed lews are for Individual series and may be ea different dates far different series




SHORT-

AND

INTERMEDIATE-

TERM

INTEREST

RATES

GOVERNMENT

/aWI

Ml
•2.0

PRIVATE




-7-

Exhibit D - Tables for Exhibit C
Short- and Intermediate-tehn Interest Rates
Government
Date

Discount
rate 1/

3-month
bills 2/

Yields
6-month
bills 2/

3-5 year
issues 2/

Spread between yields on
3-month bills and yields on
6-mo. bills 13-5 yr. issues"

(per cent)
I
f
!
:

195^4 - Low
1957 - High
1958 - Low
1959 - High
Low
I960 - High
Low

1.50
3.50
1.75
It.OO

Nov.
Nov.
Nov.
Nov.
Dec.

3.00

1*
11
18
25
2 g/

Date

(6/11)
1.66 ( V 3 0 )
(10/18)
l*.ol* ( 1 0 A 8 )
(5/29) 3.02 (12/26) 2.1U (6/6)
(12/2U) 1*.91 (12/31) 5.00 (12/21*)
(2/20) 2.92 (1/2)
3.70 (1/2)
5.07 (1/8)
b.97 (1/8)
(10/28) 2.39 (8/5)
3.1t7 (9/23)

2.50
l*.oo
3.00

3.00

3.00
3.00

3.00

2.20
2.1*0
2.1x6

2.38

2.35

Stock Exchange
call loan 1/

2.50
2.59
2.75

2.71
2.70

3.59
3.63

3.69
3.72
3.75

.66
.86

,
.26
.79
.19

.58

.Oil
1.1*2
.1*0
1.81

.16

.38

.30
.19
.29
.33

1.39

.35

1.23
1.23
1.01.
1.1*0

Spread between 3-month
Prime Finance company Treasuxy bill yield and
rate 1/ paper y
finance company
paper rates
(per cent)

1951* - Low
1957 - High
1958 - Low
1959 - High
Low
I960 - High
Low

3.00
li.50
3.50
5.00
U.00
5.50
l*.5o

l*.5o

Nov.
Nov.
Nov.
Nov.
Dec.

l*.5o
l*.5o
l*.5o
l*.5o
l*.5o

it-5o
l*.5o
l*.5o
l*.5o

I*
11
18
25
2 2/

1/

3.00
l*.5o
3.50

5.00
li.OO
5.00

1*.50

1.25 (12/31)
3.88 (11/15)
1.13 (8/8)
1*. 88 (12/31)
3.00 (3/6)
5.13 (1/22)
2.88 ( I l A )
2.88
2.88
2.93
2.9l|
2.91*

0 (12/18)
.59 (7/19)
-.35 (8/29)
.86 (10/9)
.13 (12/1*)
1.02 (3/25)
.22 (1*/15)
.68
.1*8
.li7
.56
.59

Weekly rat* whown Is that In effect at end of parted. Blsoount rat# la. for Federal Reserve Bank of He* York.
Stock axohange call loan rate le going rate on call loans secured ty ouetooere* etook exchange collateral at
New York City banks. Prime rate Is that oharyud by large banks on short-ten* loans to business borrowers of
the hlghaet credit standing.
2/ Market yield; weekly a v e r a g e computed from daily closing bid price*. Series of 3-6 year Issues nenelstw »f
selected notes and bowls.
3/ Average of dally rates pul.llehed t.y flnri.no« ooapanles for directly placed paper for varying maturities In the
<0-179 day ru««e.
Mote.—Hl#the and lows nr* for lndlvldu»l e<trles.u,nd may be on dlfferutt dates for <# f ferent series. Per spread#,
"*«»• refer a to widest, and low to narrowest,'




STOCK

MARKET




Exhibit F - Tables for KxliibiL E

-9-

Stock Market
Trading
Stock market customer credit
volume y
Customers'
Bank
yields 2/ (millions Total debit bal- loans to
(per cent) of shares)
ances h/ "others" 5/
(Mil]Lions of do]Liars)
Common

Stock price
index 1/

Date

1957-59 - High
Low
I960 - High
Low

60.51
39.78
59.50
53.32

October
November
Nov. 18
Nov. 25 *
Dec. 2 2/

53.73
55.17
55.82
56.13
55.39

(7/31/59)
(12/27/57)
(1/8)
(10/21)

3.07
1.66
3.18
3.62

It. 3
l.lt
3.9
2.2

lij 76U
3,55k
It,365
It,132

3,lt01
2,lt82
3,198
3,00lt

3.60
3.51
3.1*8
3.1*7
3.51

2.6
3.1
2.8
3.2
3.It

It,29I

3,133

1,373
1,060
1,167
1,111
1,161

n.a.
n.a.
n.a.

1,1#
1,155
n.a.

11.a.—Not available.
g/ Preliminary.
1/ Standard and Poor's Tmposite Index of 500 common stocks, weekly closing prices, 1941-43=10. Monthly data,
are averages of dally figures rather than of M d a y s ' only. Hlyhs and lows are for Fridays' data only.
2/ Standard and Poor's composite stock yield based on Wednesday data converted to weekly closing prices by
Federal Reserve. Yields shown are for dales on which price index reached Its high or low.
3/ Averages of dally trading volume on the New York Stock Bcoliange.
4/ End of month figures for member firms of the New York Stock Exchange which carry margin accounts; excludes
balances secured by U. S. Government obligations.
5/ Wednesday figures for weekly reporting member banks. Excludes loans for purchasing or carrying U, S.
Government securities* Prior to July 1, 1959, such loans are excluded only at banks In New York and Chicago.
Weekly reporting banks account for about 70 par cent of loans to others. For further detail see Bulletin.

Federal National Mortgage Association Secondary Market Operations 1/
Purchases
by
Immediate Standby
mm
purchase commitment
(Millions of dollars)

1
I
I

Date

19# - Oct.
Nov.
Dec.
I960 - Jan.
Feb.
Mar.
Apr.
May-

July
Aug.
Sept.
Oct. 2/

Estimated
'Total
108.3
105.6
116.3
137.6
135.8
133.2
103.5
98.5
99.9
88.0
IOU.0
72.8
70.1

101.8
100.3
111.I
128.3
128.9

12k. 6
96.2
93.8
93.7
82.9
89.1
69.5
68.6

6.5
5.3
It. 9
9.3
6.9

8.6
7.3
, It. 7
6.1
. 5.1
1U.8
3.2
1.5

105.5
92.6
92.2
86.1
116.7
135.0
102.6
91.9
60.8
93.7
75.6
- 63.0
58.8

Sales
by
FNMA

3.6

1.0
3.2

.1

.8
1.1

mmmsmi
commitment contract*.

Data exclude PUMA activity under Special Assistance and Management and


Liquidating Programs.


Exhibit G
Long-term Corporate and State and Local Government
Security Offerings and Placements
(In millions of dollars)

I960
January
February
March

Corporate 1/
1
1 1959

New capital
. , State and local 2/
I960
1 1959 1 1958

1958

738
623
575

639
858
646

812
953
511

l,i4o
597
887

731
550
1,030

932
593
1,006

798
895
551

235
740
703

1,107
540
1,114

571
599
2/670

r«
465

403
651

e/900

879
864
900

862
518
920

.S/325
e/500
e/450

t ;
li55

456
474
435

2,151
2,367
2,427
e/2,725

2,204
2,567
1,979
2,642

3,139
2,623
2,760
. 2,300

1,936
2,311
E/l,840
e/1,275

£15
1,571

1,860

4,771
6,750
9,392

5,762
8,522
10,823

4,247
2/6,087
e/7,362

4,674
6,222
7,793

4,520
6,380
7,746

577
715
860

821
738
61+6

1,5*3/

766
567
1,03k

89 V
785
887

727
962
738

October.
November
December

e/1,000
e/825

1st
2nd
3rd
4th

April
May
July
August
September

quarter
quarter
quarter
quarter

1st half
Three quarters
Year

1,519
6,91*5
e/9,670

728

806

2,lli3

2,276

2,244
1,365

Excluding finance companies 4/
1st
2nd
3rd
4th

quarter
quarter
quarter
quarter

Year
e/ Estimated.

1,722
2,150
2,017
e/2,325

,1,999
2,412
1,716
2,503

2,899
2,586
2,731
2,213

e/8,2l4

8,630

10,429

g/ Preliminary.

1/ Securities and Exchange Commission estimates of net proceeds..
2/ Investment Bankers Association of America estimates of principal amounts.
3/ Includes $718.3 million AT&T convertible debenture issue.
4/ Total new capital issues excluding offerings of sales and consumer finance
companies.




Exliibit h

H.lh

—

Other Security Offerings 1/
(In millions of dollars)
Long-term
1
Foreign government 2/
Federal agency 3/
I960'
I960
I 1959
I 19^5"
195o
1959
January
February
March

2
175
70

81
60
2

196
53

April
May
June

3k
72
llO

• 58
50
li2

139
198
120

lU8
35U

July
August
September

25
1
36

9
5
17

199

33
30
70

58
123
7h

p/l60
2/100

547

992

.

October
November
December
Year

85
1
35,

182
150
150

—

April
May
June
July
August
September
October
November
December

190
U2Q
295

268

%

563
Itll
215

3 65
351
297
280
505
199
JD/1U6

Year.

.

2ii6
16?
399

233
160
273

E
s 1
26 h

289
h23
369

235
313
358

U5
2li3

1,179

3,910

175

312
' 168
296
2hl
282

1,163
251
523

16U

98
150

220
86
707

Short-tferm
State and local government U/
January
February
March

199

2,321

Federal agency 3/
359
500
I189

371
208
114)4

075
289

209
161
329

727
365
665

137
206
330

m
288

1.5U.
11U
137

I186

6,0h7

3,098

fi/ Preliminary.
1/ Data presented in this exhibit differ froii those In Exhibit E in ttoit refunding isiuos, an well an new
capital leaues, are included. Long-term securities are defined as those mtm-t/yj In *»re than one year.
\/ Includes securities off,red in the United States by foreign goverrjnonte and their rubdtvisions end by
ln'.ermt'.onftl organisations, Sourcei Securl tie9 ami Bxuhr.ag* Commie*!on.
3/ Issues not guarantied by the U. S. Oovimier.!.. Seuroei long-term, Securities and BcohonRt Cor.nlniloni
short-term, Federal Reserve.
4/ Principally tax and bond anticipation not*s, warrants or eerttfloatee and Public Housing Authority
not**. In 3one instances 1»HA rotes included may have a siweewhaV longer tens t M n one year. Sourcei Bond Buyer.




Large Long-term Public Security Issues for New Capital
IOther than U. S. Treasury) 1/
Proceeds of Large Issues Offered
(In millions of dollars)

Month

Corporate

421
230
279
262
38U
309
139
442
303
581
266
566
165

1959 - November
December
i960 - January
February

March

April
May

State and
local government

•

July
August
September
October
November

163
217
388
283
225
370
234
561
191
298
367
46
186

Other 2/

70
100
320
191
71
28
30
75
25
77
150

Large Individual Issues Offered during November

Type J/

CORPORATE
United Gas Corp.
United Gas Corp.
Pacific Gas & Elec. Co.
Commercial Credit Co.
New Jersey Bell Tel. Co.
Northern Natural Gars Co.
Idaho Power Co.
John Deere Credit Corp.
Wise. Elec. Power Co.
B. F. Goodrich Co.
Consol. Edison Co. of NY
United Airlines

Amount
Coupon
rate or Offering
(millions
Maturity
Rating
net inter- yield
of
dollars)
est cost

1st mtg. coll.
tr. bds.
30.0
S.F. deb.
30.0
1st ref.mtg.bds. 60.0
Sen. notes
50.C1
Deb.
20.C1
S.F. deb.
20.0'
1st mtg. bds.
15.01
Deb.
50.0
1st mtg. bds.
30.0
Deb.
60.0
1st ref.mtg.bds. 75.0
Conv.sub.deb,
25.0

1980
1980
1992
1980
2000
1980
1990
1985
1990
1985
1990
1985

5
5-1/8
4-5/8
4-3/4
4-7/8
4-7/8
4-7/8
4-7/8
5
4-5/8
5
4-7/8

1961-75
1961-85
1961-80
1963-85

3.16
3.05
3.34
3.82

4.88
5.05
4.63
4.83
4.72
4.85
4.78
4.95
4.85
4.63
4.87
4.88

A
Baa
Aa
—

Aaa
A
Aa
Aa
Aa
Aa
Ba

STATE AND LOCAL GOVERNMENT
Cook County, Illinois
Trenton, New Jersey
State of Mississippi
PortforofFRASER
Los Angeles, Cal.
Digitized

Rev.-S.T.

G.O.
G.O.
Rev. -Ut.



25.0
10.9
12.0
11*. 0

1.70-3.35
1.60-3.25
1.60-3.40
2.30-3.90

A

Aa
Aa

A

1-2

-13-

Large Individual Issues Offered during November (Cont'd)

Issuer

Type g

Amount I
Coupon
rate or Offering
(millions
|Maturity
Rating
of
net inter- yield
dollars)]
est cost

STATE AND LOCAL GOVERNMENT
(Cont'd)
State of Massachusetts
G.O.
Philadelphia, Pa.
G.O.
Port of New York Authority Rev.-Ut.
Alabama Highway Authority Rev.-S.T.
Florida Development Comm. Rev.-Ut.
OTHER

3U.8
35.1
25.0
15.0
Hi.5

1961-2009
1962-91
1989
1962-81
196b-90

3.15
3.17
3.81
3.78
li.22

1985
1966

Vl/8

1.60-3.55
1.85-3.65
3.75
1.80-3.85
2.75-4.25

Aa
A
A
A
Baa

Lko

Aaa.

lu27

—

.

Tennessee Valley Auth.
Federal Nat. Mtge. Assoc.,

Bds.
Bds.

5o.o
100.0

h.hk

and local government security offerings of $10 million and over.
2/ Includes foreign government and International Bank for Reconstruction and
Development issues and non-guaranteed issues by Federal agencies.
3/ In the case of State and local government securities, G.O. denotes general
obligations; Rev.-Ut., revenue obligations secured only by income from public
utilities; Rev.-Q.Ut., revenue bonds secured only by revenue from quasi-utilities
Rev.-S.T., revenue bonds secured by revenue from specific taxes only; Rev.-Rent.s
revenue bonds secured solely by lease payments.




Exhibit J

-ill-

Forthcoming Large Long-term Public Security Offerings for New Capital
(Other than U. S. Treasuiy) 1/
Expected Proceeds from Forthcoming Large Issues
Date of
computation

Subsequent to
date shown

During month following
date shown
Corporate [ * %
226
210
207
301
299
202
183

1959 - Nov. 30
Dec. 31

1960 - Jan. 29

Feb. 29
Mar. 31
Apr. 29
May 31
June 30
July 29
Aug. 31
Sept. 30
Oct. 31
Nov. 30

216

576
Bo
260

|Other 2/ Corporate | g %
271
280
252
372
3kh

70
30
hS
35

295

bhS
210

255
250
2U3

30
30

277
180
275
283
212
258

77
50

2ii2

Other 2/

ii85

70
30
15

515

3io
385
280
258
502
380
32h
283
336

1

1,006
731
836
585
335

35
60

30
127
50

Forthcoming Large Offerings, as of December 2
Type

Amount
(millions Approximate date
of dollars) of offering

CORPORATE
Deb.
Southern Bell Telephone & Telegraph
Deb.
Beneficial Finance Corp.
1st mtg. bds.
Northern States Power Co.
1st mtg. bds.
Potomac Electric Power Co.
1st mtg. bds.
Consumers Power Co.
Pfd. stk.
Public Service Electric & Gas Co.
Commerce Oil Refining Corp. •
Deb., bds. & com.
Bds. & stk.
Liberian Iron Ore, Ltd.

75.0
50;0
35.0
iiO.O
35.0
25.0
U5-0
30.0

Dec.. 6
Dec. 7
Dec. 7
Dec. 8
Dec. 13
Dec. Ik
Indefinite
Indefinite

Rev.-Ut.
G.O.
Rev.-Q.Ut.

10.0
12.5
12.0
97.6
25.0
16.1
1U.2

Dec.
Dec.
Dec.
Dec.
Dec.
Dec.
Dec.

Rev.-Ut.
G.O.

55.0
95.0

December
Jan. 11

Rev.-Ut.

12.0

Indefinite

STATE AND LOCAL GOVERNMENT
San Diego Sch. Dist., Calif.
Maryland State Roads Comm.
Dade County, Florida
Public Housing Authorities
State of Michigan
*State of New Mexico
*State Colleges of Calif.
Oklahoma City Metro. Improvement
Auth., Oklahoma
estate of California
Dept. of Wtr. and Pwr.,
DigitizedLos
forAngeles
FRASER
California



G.O.
Rev.—S.T.
G.O.

6
7
13
lit
1U
19
21

J-2

-15-

Forthcoming Large Offering, as of December 2 (Cont'd)
Issuer

Type

Amount
(millions Approximate elate
of dollars) of offering

STATE AND LOCAL GOVERNMENT (Cont'd)
Orleans Parish School Dist., La.
Kentucky Turnpike Authority
Dade County, Florida
New York State Housing Fin. Agency

G.O.
Rev.
G.O.
Rev.

10.0
55.0
1*6.0
100.0

Indefinite
Indefinite
Indefinite
Indefinite

OTHER
None
*—Includes in table forfirst time.
1/ Includes corporate and other issues of $L$ mill ion and over; State and local
government issues of $10 million and over.
2/ Includes foreign government and International Bank for Reconstruction and
Development issues and non-guaranteed issues by Federal agencies.
Note.—Deletions for reasons other than sale of issue: State of Texas' $13 million general obligation issue—postponed until 1961,




-16=

Exhibit K
Yields on New and Outstanding
Electric Power Bonds, Rated Aa and A 1/
Date

1952-1959 - High
Low
1959 - July
Aug.
Sept.
Oct.
Nov.
Dec.
1960 — Jan.
Feb.
Mar.
Apr.
^ May 10
12
25
June 17
28
29
July 8
13
Sept. 15
23
28
Oct. 5
21
Nov. 4
16
17
18

Aa-rated offering yields A-rated. offering yields
Amount above
Amount above
Actual
Actual seasoned yields
(per cent) seasoned yields (per cent) (basis points)
(basis points)
5.30 (12/8/59) 87
2.93 (3/31/54) -3
*4.93
it. 83

31
23

5.13^/
*5.08

36
42

*5.30

63

5.09

45
25
37
32

4.82
4.91
4.88

4.82
4.84

25
27

5.65 (9/18/59) 123
3.00 (3/17/54) -15
5.07

17

*5.65
5.33

60
43

5.45,,
*5.302/

51
28

4.97
5.14

9
35

5.10
5.20
4.95

33
11

4.93
4.88
4.80

11
8
24

4.88

26

5.05

43

26

g
4.632/
4.67=/

4.78
4.85

24
22

33
. 40

•--Single observation, not an average.
1/ Covers only 30-year first mortgage bonds, as reported in Mooter's Bond Survey.
Except where indicated, the actual yield figure and the amount above seasoned
yields are averages of offerings during the indicated period and of the differences between these new-offering yields and yields on seasoned issues of similar
quality for the same day. Average maturity for the seasoned issues varies from
26 to 28 years.
2/ Provides for a 5-year period during which issue may not be called for refunding
at a lower coupon rate. Monthly averages so marked include one or more issues
with such a provision. Other issues have no such provision.




December 5> I960
Part II - Canada

-17-

Money and Capital Markets During November
The divergence in interest rate trends between Canada and the
United States which emerged in October was continued during November.
During the months, interest rates continued to rise much more sharply in
Canada than in the United States. On December 1, Canadian bill yields
returned close to k per cent, the highest level since mid-March.
In the rise in Canadian money rates since late September, the
Canadian bills have shifted from being below United States yields to a substantial spread in their favor. The spread in favor of Canadian bonds has
also widened sharply. Representative yields in the two countries on
September 22 (the I960 16w for Canadian markets) and on December 1 which
show recent trends are as follows (in per cent per annum):
September 22
DifferU.S.
ence

Canada
bill (3 mos.)
(6 mos.)
8-year
20-year
35-year

1.68
1.99
U.lU
U.66
k.70

2.50
2.85
3.U7
3.7U
3.67

-0.82
—0.86
+0.67
+0.92
+1.03

December 1
DifferU.S.
ence

Canada
3.95
U.07
U.72
5.21
5.16

2.33
2.70
U.00
3.93
3.82

+1.62
+1.37
+0.72
+1.28
+1.3U

The recent sharp rises in Canadian yields reflect a tightness in
Canadian financial markets which is not fully explained by available
statistics. Worries about the substantial unemployment induced the Prime
Minister to convene Parliament in November to put in effect emergency
measures for the coming winter. Several factors seem to have contributed
to recent rate trends. A substantial expansion in new long-term issues of
securities occurred in November. . In addition, sales of Savings Bonds
materially added to Government cash balances during the month; net sales of
Savings Bonds totaled $785 million. The delays in distributing the September
$250 million CNR offering added to market pressures. A private market
firm's analyst has stated that the Government's decision to compete for
long-term funds instead of selling only short-term issues contributed to the
pressures on long-term rates.
The price of industrial stock declined during November and the
Canadian dollar eased but remained above 102 (U,S. cents) through the month.
Money market. Yields on Canadian Treasury bills rose through
November, continuing the trend of the previous month. On November 2k, the
average yield on the 3-month bill was 3.77 per cent compared with 3.03
per cent at the end of October (see Table). Since September 22, when the
short-bill yield reached a low for the year of 1.68 per cent, yields rose
2.09 percentage points. The yield on the 6-month bill followed a similar
trend and rose to 3.93 per cent on November 2U;compared with 3.3b at the
end of October. During the November period, the chartered banks sold $)|)|
million of Treasury bills while the general public purchased $55 million;
the Bank of Canada sold $8 million.




-18-

The spread favoring the Canadian bill widened during November
and exceeded 1 per cent during most of the month (see Chart). On November 2U
the spread was I.38 per cent compared with 0,93 per cent at end-October.
The forward Canadian dollar shifted to a discount in early November but
the net incentive to hold the Canadian bill rose steadily from 0.6U per
cent on November 3 to 0.89 per cent on November 2U.
Yields on short-term commercial paper by major Canadian acceptance
houses also rose during the month and the spread over yields on U.S.
commercial paper was above 1 per cent on November 21*.
Yields on Commercial Paper in Major Canadian
and U.S. Acceptance Houses
(per cent per annum)
Canada
November 3

, 3.50

10
17
2h

Canada
over U.S.

United States
2.00 - 2.75

3.50
3.50-3.75
3.75 - L.00

1.03

2.75
2.75
2.75

0.75
0.87
1.12

Bond market. Bond yields rose during the month for all maturities. The spread between selected comparable Canadian and United States
securities (Thursday yields for bills and Wednesday yields for bonds) was
as follows:
Nov.

91-day bill
112-day bill
8-year bond
20-year bond
35-year bond

2U

1.38
1.23
0.68
1.30
1.28

Oct.

27

0.93
0.8U
0.76
1.0U
1.16

During the month the general public sold $U6 million of bonds and the
chartered banks purchased $29 million; the Bank of Canada purchased $1
million of bonds.
The rise in bond yields represents a continuation of the October
trend when yields moved upward from i960 lows in September. The continued
rise in yields reflects in part the increase in total new Canadian issues
from $55b..l million in October to $l,03k.2 million in November (see Table),
The substantial growth in long-term issues from $6U.l million in October
to $58U.2 million in November contributed to the rise in Canadian money
rates. There were virtually no sales of new issues in the United States
in the last five months (see Table).
Distribution delays associated with the $250 million CNR issue
of S§>tember affected the market and influenced market rates in November.
In addition, the new Savings Bondt drive resulted in sales of $785 million
of bonds by November 22.




-19On Friday November 25, the Minister of Finance announced that the
maturity on December 15 of $609 million of 3 per cent bonds would be
met with only a $200 million new bond offering to the public. For the
remainder, the Minister expects to draw down the Government's cash balances
by $109 million, retire $100 million now held by the Government's Securities
Investment Account, and refund $200 million directly with the Bank of Canada.
The terms of the $UOO million of new maturities ($200 million
to the Bank of Canada and $200 million to the general public) are as follows:
(1) 1-1/2 year, 3 per cent bonds at 98.75 to yield about 3.86
per cent to maturity;
(2) 3-year, U per cent bonds, at 98.75# to yield U.U5 per cent
to maturity.
Arrangements were also made with the Bank of Canada to refund in advance,
$200 million of 3 per cent bonds due December 1, 1961, for $200 million
of the above maturities.
There will be no further need for Canada's Government refinancing
during the current fiscal year which ends March 31, 1961 other than the
weekly roll-over of Treasury bills. Between April 1961 and March 1962,
the principal maturities will be:
May 1, 1961, $525 million;
December 1, 1961, $820.5 million;
February 1, 1962, $53.5 million.
The Finance Minister announced a new policy of making smaller
and more frequent bond issues, in more manageable proportions. The press
reported that this announcement was welcomed by investment dealers.
Chartered bank loans and money supply. General loans by the
chartered banks again showed substantial increases on a seasonally adjusted
basis. There was a $U8 million increase in November bringing total loans
outstanding, seasonally adjusted, to $5,019 million, exceeding the $5,006
million high of August 1959. In the past 8 months beginning in March,
general loans have grown by $2U8 million. The money supply, excluding
Government deposits, declined by $321 million in November after rising $809
million in the March-October period. The decline in November reflects in
part large sales of new savings bonds and deliveries of the CNR issue.
Government deposits increased by $505 million, from $20U million on
October 26, to $708 million on November 2U. The liquid asset ratio of the
chartered bank was reduced from an 18.3 per cent October average, to a
16.9 per cent average in the last week of November.
Foreign exchange. The spot rate on the Canadian dollar eased
slightly through November from a high for the month of 102.88 (U.S. cents)
on November 2, to a low of 102.02 (U.S. cents) on November 17 and closed at
102,23 (U.S. cents) on November 30. The rate on the 3-month forward
Canadian dollar moved from a small premium in the first days of the month
to a discount following sharp rises in Canadian interest rates and a
widening spread of Canadian over U.S. yields.




In October there was a $32,3 million increase in Canada's official
gold and dollar holdings, to $1,81*5.3 million. The increase was in U.S.
dollar holdings, while gold holdings fell $2.5 million.
Stock; market. The price of industrial stock on the Canadian
exchanges rose in the early weeks of November and eased some thereafter.
On November 28 the Toronto index was about 1.5 per cent above the November 1
level and the Montreal index was up almost 1 per cent. The New York
Standard and Poor index showed a rise of almost U per cent during this period.
Toronto

Montreal

New York
Standard & Poor

I960 - High
Low

532.56
U72.38

271.1
250.3

60.51
55.98

November 1
1*
10
15
18
23
28

189.25
1*92.25
1*99.81
500.09
1*98.19
U9U.25
U96.UU

263.6
263.1
26U.5
265.1
265.2
265.2
26U.1

57.22
58.26
59.71
59.31
59.29
59.17
59.L5

The total value of stock sales on the Canadian exchanges declined
through the month and fell below the October average in the later weeks
of the month.
Value of sales
Average October
Week ending Nov. 1*
11
18
25

$7.6 million
9.3
8.9
7.1*
6.9 "

British Commonwealth Section
Division of International Finance
Board of Governors of the Federal Reserve System




Selected Canadian Money Market and Related Data
3-mo. Treaa. bills
Canada
. Spread
y
U.SJy over U.S.

Canadian dollar
Spot
3-mo. discount l-l
0/
forward premlum(+)iy

Net incentive to
hold Can.
billg/

1959 - High
Low
1960 - High
Low

6.16
3® 25
111
1.68

U.U9
2 #80
14,63
2.10

2.96
0<>30
1.62
-0.82

105.51
102 *$8
105.27
101.31

—
—
—
—

—
-0.99
-0.72

—
—
1.19
-0.57

Oct. 27
Nov. 3
10
17
2U
Dec. 1

3.03
3.22
3.21
3.18
3.77
3-95

2.10
2.21
2.1*5
2.L0
2.39
2.33

0.93
1.01
0.76
1.08
1.38
1.62

102.30
102.80
102.53
102.02
102.38
102.22

102.33
102.70
102.52
101.91
102.25
102,11

0.12
-0.37
-0.06
-0,31
-0.L9
-0.1*3

1.05
0.6U
0,70
0.77
0.89
1.19

a/ Average yield at weekly tender on Thursday.
B/ Composite market yield for the U.S. Treasury bill on Thursday close of business.
c/ In U.S. cents.
cf/ 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
Cay

: a

1959 - High
Low
I960 - High
Low

6.2U

5.11
5.33
1.99

1.37
-0.86

Oct. 27
Nov. 3
10
17

3.31*
3.51
3.U7
3.78
3.93
U.07

0.81V
1.03
0.83
1.02
1.23
1.37

2lt

Dec. 1

J

Intermediate
bonds (8 yr.)
spread
Canada
5.27
U.50
5.55
U.09
U.55
U.62

U.62
!u67
U.70
U.72

Long-term bonds
135 year;
" 1 5 7 year!
Spread
Spread
Canada

a 2

5.30

u.uu
1.11
0.21

0.76
0.81 .
0.76
0.72
0.68
0.72

U.63

5.1*2

1.30
0.85

U.92

1.0U

U.89
U.99
5.09
5.20
5.21

5.05
U.73
5.28
U.68

U.93
1.0U
U.92
1V1U . 5.01
1.22
5.05
1.30 •' 5.09
1.28
5.16

a/ Average yield at weekly tender on Thursday.
Spread
between Canadian auction rate and composite market yield of U.S.
>r
on close of business Thursday#
0/ Government of Canada 2-3A per cent of June 1967-66.
a/ Spread over U.S. Government 2-1/2 per cent of 1963-68.
9/ Government of Canada 3-lA per cent of October 1979•
7/ Spread over U.S. Government 3-l/U per cent of 1978-83.
Government of Canada 3-3A per cent of September 1996 - March 1998.
n/ Spread over U.S. Government of 1995.
W




a

1,61
0.95

1.16
1.17
1.2U
1.27
1.28
1.3U

Canada: Changes in Distribution of Holdings of Canadian
Government Direct and Guaranteed Securities
(millions of Canadian dollars, par value)

I960

Bank of Canada
Treas.
Bonds
bills

JanuaryFebruary
March
April
MayJune
JulyAugust
September
October
November

- 89
+ 55
+1U1
+ 69
- 9
- 7k
: + 19
- 23
- U3
+ 66
- 8

Sources

Government
Total

- 1
-103
- 6U
+ 23
+ lU
+ 77
+ Uo
+ 3k
- 2
+ 6
+ 1

- 2k
- 23
- 5U
- 9
- 8
- Uo
+ 51
+ 78
+ 6
+ 37
+ .15

Chartered banks
Treas.
Bonds
bills
+ 81
-US
- 11
- Uo
+ 78
- 59
- 3
+ 36
+ 90

- 5u
- uu

General public
Savings Treas•
bonds
Bonds
bills
,

+ U
+ 79
+ 17
- U
+ 9
+ 27
- 28
- 12
+ U5
+126
+ 29

+
-

3
29
31
26
29
31
19
26
1U

+
+
-

- 5

19
59
78
11
97
8
58
U2
Ul
0

+ 55

+630

+ 95
+165
+ 98
+ 30
- 18
+ U6
- 5U
- 80
- 36
+ 72
~ U6

Bank of Canada, Weekly Financial Statistics*
Changes in New Issues of Canadian Government, Local
Government and Private Securities
' ~~~
(millions of Canadian dollars)
Total new
issues

Jan, 1 - Feb. 1
Feb., 1 - Mar, 28
Mar. 28 - May 2
May 2 - May 30
May 30 - June 27
June 27 - July 6
July 6 - Aug. 29
Aug, 29 - Sept. 28
Sept. 28 - Oct. 2U
Oct. 2U - Nov. 21
Sources

950.7
ls008.6
56.L
626.6
670.8
901.7
6U6.U
81U.1
55U.1
1s03Uo2

Less
short-term
510.0
580.0
6U5.0
U80.0
U80.0
U80.0
600.0
U80.0
U90.0
U5o.o

A. E. Ames 5t Co., Weekly Bond Sales Summary.




Total
long-term

Issues sold
in the
United States

UU0.7
U18.6
208.U
136.6
191.8
U21.7
U6.U
33U.1
6U.1
58U.2

31o8
98.5
25»6
2.0
66.3
0.0
0.2
0.0
0.0
0.0

-23Total Currency Outside Banks and Bank Deposits
Excluding Government Deposits
(millions of Canadian dollars)

Dec. 31, 1959
March 31, I960
June 30, I960
Sept. 30, I960
Oct. 26, I960
Nov. 2lt, I960

"Source!

Currency

Deposits

Total

1,789
1,715
1,767
1,767
1,760
1,766

10,956
10,936
11,126
11,513
11,621
11,29U

12,7U5
12,651
12,893
13,280
13,381
13,060

Change

+
+
+
-

9k
2U2
387
101
321

Bank of Canada Statistical Summary.

General Bank Lgans Seasonally Adjusted
(millions of Canadian dollars)

1959 - Aug.
1960 - Feb.
March
June
Sept.
Oct.
Nov.

Sources

Bank of Canada.




Total outstanding

Change from
previous period

5,006 »
U,771
It,786
U,866
L,971
it,971
5,019

~
-235
+ 15 .
+ 80
+ 105
0
+ U8

— — — — — — —

CANADA
SELECTED

STOCK

CHARTERED

BANK

ASSETS

BANK

DEPOSITS

-

LESS

FLOAT

MARKET




Million! of Dollars

1,4

C A N A D A - UNITED STATES
THREE-MON1
Thursday l l g u r e i

vv

V\

/ V

RATE DIFFERENTIAL W I T H FORWARD EXCHANGE- COVER




—26—

December 5, I960
Appendix I
Japans

Recent Developments in Money and Capital Markets

The Japanese stock market reacted "sharply in November to the U.S.
presidential directive Curbing overseas spending. Average prices on the Tokyo
exchange fell 2.6 per cent between November H4. and November 29o After an uninterrupted three-month advance, however, the market w;as due for some correction
and it would appear that the news was utilized as a basis for profit-taking.
During October, Japanese holdings of Euro-dollar deposits rose only
$2 million and the value of the yen in foreign exchange markets eased as dollar
demand increasedc In August and September Japanese holdings of Euro-dollars rose
$U9 and $19 million respectively. Nonetheless, Japanese international reserves
rose $59 million in October reflecting in part the conversion of $16 million in
Euro-dollar deposits into non-resident free yen and the extension of a large
volume of unsecured dollar loans from foreign banks to Japanese overseas foreign
exchange banks. Effective August 31, i960, the Japanese Government abolished
the $53 million ceiling on such borrowing«
Money market conditions were easier in October as the Government made
seasonally heavy purchases of rice under its official support program and heavy
foreign exchange inflow continued. Nominal money rates, which declined in
August under the influence of the reduction in the Bank of Japan's discount rate,
were relatively unchanged in October,
With the lowering of official discount rates in the United States and
Europe, the Ministry of Finance is urging Japanese banks to lower the interest
rates charged on loans. A reduction in the rates paid on deposits is not being
urged, current bank profits being considered more than ample by the Ministry.
Money market. The bulk of the short-term commercial paper in Japan
consists mainly of commercial bank loans on bills and discounted commercial
bills. To meet very short-term liquidity needs, commercial banks rely strongly
on the call money market. Call loans, however, constitute only about 1 to 2
per cent of the loans and discounts of all banks. Treasury bills are issued
only rarely and currently there are no issues outstanding. Even when issued,
the Treasury bill yield is pegged 1 to 2 percentage points below prevailing
market rates for high quality short-term paper. The only other short-term
government securities issued are the food bills, which are used primarily to
finance the Government's price support program for rice producers, and the foreign
exchange bills used to -finance operations of the Government's foreign exchange
fund. At the end of September food and foreign exchange bills constituted 7 per
cent of bank loans and discounts, and 96 per cent of the bills were held either
by government agencies or the Bank of Japan.
The general level of interest rates has been declining during the 1950's
and since early 1958 has tended to move in roughly the same direction as the
Bank of Japan discount rate. (See chart) The standard or prime commercial rate




-27-

since 1958 has been pegged at the same level as the discount rate, which is
currently 6.935 per cent. The interest rate on most commercial paper is,
of course, above the prime rate; the most frequent current rate for loans on
bills is 8.0 per cent and for discounted commercial bills it is 7.7 per cent.
The table below indicates the changes in the discount rate and a composite
rate for commercial bank credit since 1955.
Japan: Discount and Interest Rates
(per cent per annum)
Bke of Japan
Discount Rate

Date
Aug.
Mar.
May
June
Sept.
Feb.
Dec.
Aug.

1955

1957
1957
1958
1958
1959
1959

—
—
—
—

i960 —

,

7

7.3oV
7.67
8.U0
7.67
7.30 .

6.9k
7.30
6.9U

Composite
Int. Rate
8.90
8.22
8.28
8.61
8.U1
8.25
8.11
8.20

1/ Since October 1951 rate had been 5.8U per cent.
Interest rates on time deposits are relatively high compared to the
United States and many European countries. Three-and six-months time deposits
currently yield In3 and 5.5 per cent respectively. The yield on one-year time
deposits is 6 per cent.
The generally high level of interest rates has attracted during I960
relatively large amounts of foreign short-term capital. Since early in the year,
foreign branches of Japanese banks have acquired Euro-dollar deposits which ia
part have been invested in Japan. The cost of these funds has been about b-l/2
per cent, the funds then being re-lent at rates of 7 per cent or higher<> This
process was facilitated by the introduction of non-resident convertible yen accounts on July 1, I960. The total level of dollar deposits attracted from Europe
rose from $3 million at the end of January I960 to $227 million fit the end of
October and the level of free yen accounts, fed mainly by these accounts,
reached $176 million at the end of October.
Recently the rise in the level of Euro-dollar deposits has slowed
considerably, increasing only $19 and $2 million in September and October,
respectively, compared to monthly increases of $Ui million or higher in the
June-August period. It is possible that the slower rate reflects primarily a
diminution in the supply of Euro-dollar availabilities.
Bond market. Yields on public and private debentures do not appreciably
reflect shifts in market demand and supply in Japan because of government regulation of the market. Average yields on government and public corporation bonds




—28—

have remained at 6.32k and 7.269 per cent per annum, respectively, since the
last half of 1957. Similarly, the yield on bank debentures for three years
prior to June I960 was 7*621 per cent but since July has been at 7.610 per
cent. Yields on local government bonds and corporate debentures have changed
only slightly during the same period and in September I960 were 7.715 and
7.911 per cent respectively.
The volume of bond issues in September was high, reflecting the
general uptrend since the beginning of the current economic boom in mid-1958=
During the first nine months of I960, issues of bank debentures, industrial
debentures, and public corporation debentures showed a net increase over the
rise in first nine months of 1959 of ¥81* billion, 315 billion, and ¥18 billion,
or 35 per cent, 11 per cent, and 59 per cent, respectively.
Interest rates. Most short-term interest rates in Japan are subject
to ceilings set by the Federation of Bankers Associationse Because of the tight
money market conditions in the past two years, interest rates have remained
generally at the established maximum levels. The call market money rate has
generally been at the maximum of 8,39 per cent per annum since August of 1959.
Demand for call money in late July I960 was so strong, however, that the maximum
rate was exceeded temporarily, rising to 10,2 per cent. During August-October
the market has not been as tight,
A composite interest rate of total bank loans and discounts indicates
that rates remained unchanged during April-July this year but dropped slightly
in August from 8,22 to 8,20 per cent per annum probably reflecting reduction
in the Bank of Japan discount rate in August, The most frequent interest rate
for loans on bills in September was 8,03 per cent and for discount of commercial
bills it was 7.67 per cent. The standard, or prime rate, for discount of commercial bills eligible for rediscount at the Bank of Japan is pegged at the same
level as the Bank of Japan discount rate. The prime rate was lowered in August
when the Bank of Japan discount rate was changed from 7*300 to 6,935 per cent
per annum. The average interest rate for loans on deeds dropped from 9ok9 per
cent in August, where it had held steady for two years, to 9ol3 per cent in
September,
Bank loans and discounts. Bank loans and discounts rose somewhat
more rapidly in I960 than in 1959 as indicated in the table below. In the
first and second quarter in I960, the rise was 3.3 and 3.2 per cent, respectively
compared to 2,9 and 2,6 in the first and second quarters of 1959. The rise in
the third quarter of I960 was 5.U per cent which was considerably above the I4.06
per cent rise in the third quarter of 1959.
Increase in Loans and Discounts: All Banks
(In billions of yen)

I
II
III
17

1958

•JL

1959

_1_

I960

125
1U6
235
283L

2.5
2,8
U.U
5,1

168
157
281
38k

2,9
2.6
it,6
6.0

225
227
395




3,3
3,2
Sok

--29The proportion of loans and discounts extended for financing
equipment purchases in contrast to providing operating funds has risen
steadily since 1955. At the end of September I960, the ratio of equipment
funds to total loans and discounts was 16,5 per cent compared 15.8 and 15# 1
per cent one and two years earlier, respectively.
Stock marketo Stock prices in October and the first half of November
continued the general rise which began in early 1958® On November 111, I960,
the Dew Jones average of 22$ issues rose to an all-time high of ¥1,321. This
is 52 per cent above the year's low of ¥869 in January, and 178 per cent above
the ¥1*75 level in early 1958 when the current upward movement in stock prices
began.
After the announcement on November 17 of President Eisenhower's
directive cutting back U.S. overseas spending, the Dow Jones average dropped
rather sharply. From a peak of ¥1,321 on November lit, the average fell 2.6
per cent to ¥1,287 on November 30. The news apparently helped to set off an
overdue technical correction after an uninterrupted three-month advance.
Dow Jones Average of 225 Stocks
Tokyo Stock Exchange
Sept. 28
Oct. 5
12
19
26
Nov. 2
9
16
2U
30

¥1,213
1,235
1,2U3
1,258
1,257
1,272
1,301
1,311*
1,305
1,287

I960 High ¥1,321
Low ¥ 869

Foreign exchange. With the tapering off in the availability of Eurodollars, there was a weakening of the yen in November. The spot rate rose from
¥359.60 per dollar on November k to ¥361.80 per dollar on November 25, The
discount on three-month forward exchange widened, reaching a 2 per cent per
annum differential on November 25.




Customer's Exchange Rates of
Bank of Tokyo

-30-

Date
Oct. 28
Nov. U
11
18
25

Spot rate 1/
359.60
359.60
360.50
360.20
361.80

Discount on
3-month
Forward
Exchange £/

Discount on
3-month
Forward
Exchange 2/

.10
.10

0.11

1.20
1.00
1.80

0.11

1.33

1.11

1.99

1/ Customers' T.T. selling rate in Tokyo.
?/ Spread between spot and 3-month T.T. buying rate forward in Tokyo.
3/ Spread between spot and forward rates in per cent per annum.

Far Eastern Section,
Division of International Finance,
Board of Governors of the Federal Reserve System.




M

JAPAN-RECENT

INTEREST RATE T R E N D S

-

-

COMPOSITE 1 HTEREST RATE
OF A l l L BANKS *.
-

l o a n s and1 D i s c o u n t s

i

X

?

-

K.
1

DISCOUNT RATE

1

L

.

V '

-

t

-

i

1955

1956

1957




195 8

1959

I9 60

1961