Full text of H.16 Capital Market Developments : February 6, 1961
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Not f o r Publication DECONTROLLED AFTER SIX MONTHS H.lU Li:.r.ARY FEr 0 1S61 February 6, 1961. 1 CAPITAL MARKET, DEVELOPMENTS A I'illi) UUllMI olJLTES AND CANADA (Including S p e c i a l Review of Honey and Capital Markets in Switzerland) Part I - United S t a t e s State and l o c a l governments sold l a r g e i s s u e s with t o t a l proceeds of $117 m i l l i o n during the week ending February 3. No l a r g e c o r p o r a t e i s s u e s were sold l a s t week. This week, t h e calendar includes one corporate offering for m i l l i o n and two S t a t e government i s s u e s with aggregate proceeds of $23 m i l l i o n . Long-tenil bond y i e l d s - Bond y i e l d s changed l i t t l e l a s t week. Yields on S t a t e and l o c a l government bonds remained s t a b l e , while those on corporate and U. S. Government bonds declined s l i g h t l y . During the month of January y i e l d s declined f o r corporate bonds, but increased f o r other c a t e g o r i e s of seasoned bonds. The d e c l i n e f o r corporate y i e l d s was 2-6 b a s i s p o i n t s and the i n c r e a s e f o r S t a t e and l o c a l and U. S. Government o b l i g a t i o n s £-11 b a s i s p o i n t s . The average y i e l d on new i s s u e s of corporate bonds f e l l Ui b a s i s p o i n t s , t o li.35> p e r c e n t , about equal to the i960 low reached in August. Short- and intermediate-term i n t e r e s t r a t e s - Yields on Treasury b i l l s increased s u b s t a n t i a l l y l a s t week, while those on intermediate-term i s s u e s remained s t a b l e . Other major s h o r t - t e r m money r a t e s were unchanged. Yields on Treasury b i l l s increased 8 b a s i s p o i n t s i n January, and t h o s e on 3 - 5 year i s s u e s 2% b a s i s p o i n t s . Rates on d i r e c t l y placed f i n a n c e company paper were lowered twice during the month. FNMA. secondary market operations - Mortgage market easing continued to be r e f l e c t e d in December secondary market operations of t h e Federal National Mortgage A s s o c i a t i o n . The d e c l i n e in o f f e r i n g s of mortgages to FNMA and purchases by FNMA t h a t c h a r a c t e r i z e d the e a r l i e r months of the year continued. Sales, amounting t o $23.3 m i l l i o n , were higher i n the l a s t month of i960 than in t h e f i r s t 11 months combined. Stock prices - Stock p r i c e s rose 2 p e r cent f u r t h e r l a s t week in very heavy t r a d i n g a c t i v i t y . Standard and P o o r ' s index of 500 common stocks, closed a t 62.22 on Friday, February 3, only s l i g h t l y lower t h a n the Thursday peak. The volume of t r a d i n g averaged .lu9 m i l l i o n shares a day. -3During the month of January, stock p r i c e s rose 6 per cent and t r a d i n g a c t i v i t y averaged a record it, 2 m i l l i o n shares a day. More d e t a i l e d information concerning recent c a p i t a l market developments i s presented i n the a t t a c h e d e x h i b i t s . Developments i n the Canadian c a p i t a l market a r e presented i n P a r t I I of t h i s r e p o r t and a s p e c i a l review of the Swiss money and c a p i t a l markets i s appended. C a p i t a l Markets Section, Division of Research and S t a t i s t i c s , Board of Governors of the Federal Reserve System. JXHltlT A_ L O N G - T E R M B O N D YIELDS HIGH-GRADE A/ LOWER-GRADE Y\j Z U.S. eOVIKHMINT Exhibit B - Tables f o r Exhibit A Long-term Bond Yields High-grade Date Corporate Aaa y State and local government Aaa 3 / U. S. Govt. long-term 2/ (per cent) 2.1t5 (8/6) 1.90 (9/2) 3.76 3.07 (10/18) (4/25) 2.6U (5/1) lt.it2 (l/P/60) Spread between U. S. Govt, and Corporate State and Aaa l o c a l Aaa 195It - Low 1957 - High 1958 - Low 1959-60 - High 1961 - High Low 3*55 (5/2) h.3k (1/6 4.30(2/3) 3.92 (1/20) 3.81t (1/6) 3.16 (1/19) 3.13 (1/5) .30 .60 .22 .59 .50 .itO . Jan. Jan. Jan. Jan. Feb. h.3h 1.33 it. 32 it. 31 It. 30 3.Bit 3.90 3.92 3.89 3.88 3.13 3.lit 3.16 3.16 3.16 ,50 .it3 .itO .it2 .it2 6 13 20 27 3 £/ 2 . 8 5 (4/23) i t . l L (9/27) It. 6 1 (1/29/60) 3.it5 (8/29) 3 . 6 5 (9/24/59) •30 .50 .3it . .92 .76 .71 .71 .76 .76 .73 .72 Lower grade Date 195it - Low 1957 - High 1958 - Low 1959-60 - High 1961 - High Low Jan. Jan. Jan. Jan. Feb. 6 13 20 27 3 2/ £/ Preliminary. 1/ Weekly average of 2/ Weekly average of 3/ Thursday figures. Note .—Highs and lows Corporate Baa 1 / S t a t e and local government Baa 3/ (per cent) 3.itU (12/31) 2.93 (8/5) 5 . 1 0 (11/29) it. 5 1 (7/11) 5 . 3 6 (2/12/60) it. 5 1 (8/29) it.it6 (1/7/60) 5.12 (1/27) 5.08 (1/6) it.09 (1/19) it. 03 (1/5) 5.08 5.10 5.11 5.12 5.09 it. 03 it.oit it. 09 it.09 it. 09 3.6it (5/1) Spread between Aaa and Baa State and Corporate l o c a l Kovt, .52 1.27 .77 .8it .7it .81 .96 1.21 .93 1.08 .93 .90 .7it .77 .79 .81 .79 .90 .90 .93 .93 -9,3 dally figures. Average term of bonds Included i s 25-26 years. dally figures. The series Includes bonds due or callable In 10 years or more. Only general obligation bonds are Included; average tern Is 20 ysars. are for Individual series and nay be on different dates for different series. . GOVERNMENT 13 - 5 YEAR ISSUES [PRIVATE f fTl NANCE COMPANY PAPEI iDlntlly Plac.d Exhibit D - Tables f o r Exhibit C -7- Short- and Intermediate-tern I n t e r e s t Bates Government Date Discount rate _1Z_ 1951* - Low 1.50 1957 - High 3.50 1958 - Low I.75 1959-60 - High II.OO 1961 - High n.a. Low n.a. Jan. Jan. Jan. Jan. Feb. 6 13 20 27 3 £/ 3.00 .3.00 3.00 3.00 3.00 Yields 6-month b i l l s 2/ (per cent) 3-month b i p s 2/ .61 (6/11) 3.62* (lo/ie) 3-5 year issues 2/ 1.66 3.02 (12/26) h.59 (i/a/60) 5.07 (1/8/60) 2.51 2:17 il^27) 2.1*2 (1/27 . 5 8 (5/29) 2.28 2.28 2.25 2.17 2.29 2.18 2.51 2.46 2.1*2 2.1*9 .66 (4/30) l*.0l* (10/18) 2.11* (6/6) 5.00 Spread between y i e l d s on 3-month b i l l s and y i e l d s on 6-mo. b i l l s 13-5 y r . issue's" (12/24/59) li@' 3.39 3.52 3.59 3.57 3.57 .26 .79 .25 .20 .20 .23 .21 .25 .20 .86 .01* 1.81 1.1*0 1.11 1.11 1.21* 1.31* 1.1*0 1.28 Private Date Spread between 3-month Prime Finance company Treasury b i l l y i e l d and rate 1 / paper 3/ finance company paper r a t e s (per cent) Stock Exchange c a l l loan 1 / 1951* - Low 1957 - High 1958 - Low 1959-60 - High 1961 - High Low 3.00 1*.50 3.56 5.50 n.a. n.a. 3.00 1*. 50 3.50 5.oo n.a. n.a. 1.25 3.88 1.13 5.13 2.83 2.71 Jan. Jan. Jan. Jan. Feb. l*.5o l*.5o i*.50 l*.5o l*.5o i*.5d 1*.50 l*.5o 1*.50 l*.5o 2.83 2.81 2.81 2.71 2.61* 6 13 20 27 3 £/ (12/31) (11/15) (8/8) (1/22/60) (1/6) (1/27) 0 (12/18) .63 (11/22) I S !3®«> .55 .53 .56 .51* .1*2 1 / Weekly rate shown I s ttwt In e f f e c t a t end of period. Dlaoount rate I s for Federal Reserve Bank of New York. Stock Exchange call loan r a t e I s going rate on call loans secured by customers' stock exchange c o l l a t e r a l a t New York City banks. Prime rate I s t h a t charged by large banks on short-term loans t o business borrowers of the highest credit standing. 2/ Market y i e l d j weekly averages computed from daily closing bid p r i c e s . Series of 3-5 year Issues consists of selected notes and bonds. 3/ Average of A l l y r a t e s published by finance companies for directly placed paper for varying maturities i n the 90-179 day range. Note.—Highs and lews are for individual seri e s and may be on d i f f e r e n t dates for d i f f e r e n t s e r i e s , tor spreads, high r e f e r s t o widest, and low to narrowest. STOCK MARKET PURCHASES Exhibit F - Tables f o r Exhibit E S t o c k Market Stock p r i c e i n d e x 1/ Date 9 5 7 - 6 0 - High Low 9 6 1 - High Low 60.51 39 - U8 62.22 58.1*8 ecember anuaiy a n . 20 a n . 27 eb. 3 e / 56.80 59.72 59.96 61.24 62.22 Trading Common stock volume 3 / yields 2/ (millions ( p e r c e n t ) of s h a r e s ) (7/31/59) (12/2 0/57) (2/3) (1/6) Stock market customer c r e d i t " Customers1 Bank debit balloans to a n c e s 1*/ "others11 5 / ( I n nuL l l i o n s of d o l l a r s ) Total 3.08 1*. 72 3.12 3.32 1+. 9 1.1* 1*.9 3.6 4 , 7 6 b (4/59) 3,1*01 (4/59) 1 , 3 7 3 (5/59) 3 , 551* (1/56) 2,1*82 (12/57) 1 , 0 6 0 (11/57) n.a. n.a. n.a. n.a. n.a. n.a. 3.1*1 3.28 3.2l* 3.18 3.12 3-7. 1*.2 lul l*.l* 1|.9 1*,1*06 n.a. n.a. 1,181* 1,163 1,158 1,163 n.a. 3,222 n.a. n.a. n.a. n.a. a,—Not available. £ / Preliminary. Standard and Poor's composite index of 500 common stocks, weekly closing prices, 1941-43*10. Monthly data are averages of daily figures rather than of Mday's only. Highn and lows are for FH days' data only. Standard and Poor's composite stock yield based on Wednesday data converted to weekly closing prices by Federal Reserve. Yields shown are for dates on which price Index reached i t s high or low. Averages of dally trading volume on the New York Stock Exchange. End of month figures for member fires of the New York Stock Exchange which carry margin accounts; excludes balances secured by U. S. Government obligations. Wednesday figures for weekly reporting member banks. Excludes loans for purchasing or carrying D. 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 per cent of leans to others. For further detail see Bulletin. . F e d e r a l N a t i o n a l M o r t g a g e A s s o c i a t i o n S e c o n d a r y Market O p e r a t i o n s 1/ Date 1959 - Dec. 1960 - J a n . • Feb. Mar. Apr. MayJune July Aug. Sept. Oct. Nov. Dec. 2 / Purchases E s t i m a t e d O f f e r i n g s t o FNMA by Standby Immediate Total FNMA commitment ( I n m i l ] Lions of d o l l a r s ) 116.3 137.6 135.8 133.2 103.5 98.5 99.9 88.0 10l*.0 73.0 83.2 3/61.7 53.3 111.1* 128.3 128.9 121*. 6 96.2 93.8 93.7 82.9 89.1 69.8 68.6 56.9 51.1* . 1*.9 9.3 6.9 8.6 7.3 1*.7 6.1 5.1 11*. 8 3.3 ii*.6 1*.8 1.9 92.2 86.1 116.7 135.0 102.6 91.9 60.8 93.7 75.6 63.O 58.8 51.6 1*5.5 Sales by IN MA 3.6 1.0 3.2 .1 .8 1.1 8.9 23.3 l / ^%L*repMMnt%&ld principal balances of the mortgages involved, exclusive of premiums, discounts, or other charges. Offsringa are amounts of applications received durtng the period from sellers propositi that FNMA execute purchasing contracts. An immediate purchase contract covers existing mortgages which ths seller must deliver to FNMA within 45 dsys. A standby comiAtment contract relates to proposed mortgages, on housing not yet under construction, which the seller must usually deliver within one year. Puro!*.ses include thoue under both Immediate purchases and standby ooamdtment contracts. Data exclude FNMA activity under Special Assistance and Management for FRASER and Liquidating Programs. Digitized -- Exhibit G Long-term Corporate and State and Local Government Security Offerings and Placement's (In millions of d o l l a r s ) 1961 Januaiy February March e/500 s/'t-b 0 April May 577 ' 715 860 766 567 1,03 4 July August September October November December 1st 2nd 3rd 4th New c a p i t a l State and l o c a l 2/ Corporate 1/ I I960 1961 1 I960 1 1959 1 1959 quarter quarter quarter quarter 1 s t half Three quarters Year 821 738 646 2/725 e/500 894 785 887 . 727 962 738 535 740 703 p/965 2/927 e/850 879 864 900 2,151 2,367 2,427 e/2,742 1,519 6,945 e/9,687' 739 623 582 639 858 646 731 550 1,033 932 593 1,006 572 602 689 IS 465 339 502 e/48I 597 2,204 2,567 1,979 2,642 1,943 2,316 1,863 E/1,322 2,143 2,531 1,548 1,571 4,771 6,750 9,392 4,259 6,122 E/7,444 4,674 6,222 7,793 " . . Excluding finance companies 3/ 1st 2nd 3rd 4th quarter quarter quarter quarter Year e/ \J 2/ 3/ 1,722 2,150 2,017 e/2,342 1,999 2,412 1,716 2,503 e/8,231 8,630 Estimated. g / Preliminary. S e c u r i t i e s and exchange Commission estimates of net proceeds. Investment Bankers Association of America estimates of p r i n c i p a l amounts. Total new c a p i t a l issues excluding o f f e r i n g s of s a l e s and consumer finance companies. H.Ik Extdbit H Other S e c u r i t y O f f e r i n g s 1 / ( I n m i l l i o n s of d o l l a r s ) Long-teim F o r e i g n government 2 / January February March ' 2 i 175 70 April May June 3k '72 l»o July August September 25 1 36 October November December 3li 01 60 • 2 E w 196 53 182 150 150 139 198 120 U48 351* 9 5 17 __ 199 33 30 70 58 123 74 160 11*9 g/181 86 — 547 , 992 2/1,673 .70? 2,3?1 • 58 50 1*2 85 1 35, Year F e d e r a l apency i960 1959 I 1 E 175 . 523 — Short-tbrm t I 1,163 251 199 161* 98 150 — 220 • , • Federal apency 3/ January February March 268 3ti5 365 190 .1428 295 233 I460 273 1*79 1*75 511 359 500 1*89 371 2Q8 11*1* April May June 365 351 297 563 U l 21*5 357 351* 26h 509 632 1*35 1*86 675 2.8? 209 161 329 July Atipu?t September 505 260 216 1*67 399 289 1*23 369 312 1*68 ' 296 727 365 665 .1*37 206 330 235 313 .358 h}5 733 1*71 288 1.51* 11% 137 li,179 3,910 6,01*7 3,09ft October November December , lear ; m 25h 1*99 E/215 /3,9l*2 . 231 21*1 282 177. E/ I t , 8 1 7 . ' g/ Preliminary, 1/ Ctxta presented in thie exhibit d i f f e r from thou In Exhibit B In t t o t rerun-Unit leium, an well as new wpltal leauee, are included. . Long-tar# eaeurltles are defined aa those na.tmf.ne. In more than ona year. 2/ Inoludos securities offured In the United S t a t u by foreign cevorrsmnto and their subdivisions and by . lnUrnuUonnl organliatlons, Snuraai Securities and Zxuhr.tige Convni/inlor.. ' 3/ iaouia not guar«t«ed by the U, S. Oo^rmer.?.. Souroai l o n g - t i n , Securities and Btehange Cor.ntiulonj short-tern, Federal Reserve, v \ *•£/ Principally tax and bond anticipation not*a, warrants or eertlfteatee ar.4 Public Housing Authority n»t*».. In soma Instances PHA totes Ineludid may have a somewhat longer tons thin one yeaf.• Seureei Bond Buyer. -12- Exhibit I Large Long-teim Public Security Issues f o r New Capital (Other than U. S. Treasury) 1/ Proceeds of Large I s s u e s Offered (In m i l l i o n s of d o l l a r s ) Month - Corporate i960 - January February March April May S t a t e and l o c a l government 388 283 225 370 23h 561 191 298 367 h6 186 222 391 279 262 381* 309 139 W? 303 581 266 566 he 5 260 lh7 July August September October November December 1961 - January Other 2/ 100 320 191 71 28 30 75 25 77 150 99 Large Individual Issues Offered February 1 through 3 Issuer •type 3/ Coupon Amount r a t e or Offering Rating ( m i l l i o n s Maturity n e t i n t e r - yield of dollars) e s t cost CORPORATE None STATE AND LOCAL GOVERNMENT S t a t e of Connecticut Houston -Lnd. S c h . / D i s t . , Texas Milwaukee Co., Wise. Kentucky Turnpike Auth. Term Serial Chicago - 0 'Hare I n t ' l Airport OTHER None G.O. 29.0 1961-80 2.83 1.90-3.10 G.O. Rev.-Ut. lk.0 10.3 1963-89 1962-81 3.30 2.87 1.70-4.00 1.50-3.15 Rev.-Ut. Rev.-Ut. 21.2 17,8 2000 1965-81; it. 86 In 80 3.50-4.60 Rev.-Ut. 25.0 1999 4.66 h.SO A Aaa 1-2 -13- Footnotes 1/ 2/ J/ Includes corporate and other s e c u r i t y o f f e r i n g s of $15 million and over; S t a t e and l o c a l government s e c u r i t y o f f e r i n g s of $10 m i l l i o n and over. Includes f o r e i g n government and I n t e r n a t i o n a l Bank f o r Reconstruction and Development i s s u e s and non-guaranteed i s s u e s by Federal agencies. In t h e case of S t a t e and l o c a l government s e c u r i t i e s , G.O. denotes general o b l i g a t i o n s ; Rev.-Ut., revalue o b l i g a t i o n s secured only by income from p u b l i c u t i l i t i e s ; Rev.-Q.Ut., revenue bonds secured only by revenue from q u a s i u t i l i t i e s ; Rev. - S . T . , revenue bonds secured by revenue from s p e c i f i c t a x e s only; Rev.-Rent., revenue bonds secured s o l e l y by l e a s e payments. Exhibit J -ill- Forthcoming Large Long-term Public Security Offerings f o r New Capital ( o t h e r than U. S. Treasury) 1 / Expected Proceeds from Forthcoming Large Issues Date of computation 1960 - Jan. 29 Feb. 29 Mar. 31 Apr. 29 May 31• June 30 July 29 Aug. 31 Sept. 30 Oct. 31 Nov. 30 Dec. 30 1961 - Jan. 31 During month following date shown State and 20? 301 299 202 1*83 237 596 21& #6 ao 260 91 110 210 255 259 243 277 180 275 283 212 258 242 1*12 181 hS 35 30 30. 77 50 Subsequent to date shown State and Corporate l o c a l govt. Other 2/ 372 372 3hh 357 #3 165 1,006 • 731 836 585 335 1,036 1,016 310 385 260 258 502 380 321 283 336 391 560 682 360 15 35 60 30 ' 127 50 — Forthcoming Large Offerings, as of February 3 Type CORPORATE Consolidated Natural Gas Co. Southern Co. Chesapeake & Potomac Telephone Co. Puget Sbund Pwr. & Light Co.. ^General Motors Accept. Corp. American Machine & Foundry Co. American Telephone & Telegraph Co. Commerce Oil Refining Coip. Liberian Iron Ore.-, Ltd. Realty C o l l a t e r a l Corp. Amount (millions Approximate date of o f f e r i n g of dollars) Deb. Com. s t k . Deb. 1st mtg. bds. Deb. Conv. deb. Com. s t k . Deb., bds. & com. Bds. & s t k . Coll. t r . notes 1,5.0 30.0 20.0 15.0 150.0 1*0.5 e/800.0 I6.0 30.0 20.0 Feb. 8 Feb. 15 Feb. 16 Feb. 16 Feb. 17 Mar. 16 ( r i g h t s expire) Apr. Ill ( r i g h t s expire) Indefinite Indefinite .Indefinite STATE AND LOCAL GOVERNMENT S tate of North Carolina State of Texas St. Louis, Missouri Baltimore, Maryland Dallas, Texas -^Denver, Colorado #State of New Jersey St. Paul, Minnesota Dept. of Wtr. & Pwr., DigitizedLos forAngeles FRASER California http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis G.O. G.O. G.O. G.O. G.O. G.O. G.O. G.O. 10.0 12.5 15.8 32.6 19.0 15.0 20.9 10.6 Feb. Feb. Feb. Feb.. Feb. Mar. Mar. Mar. 8 9 15 15 20 7 7 8 Rev.-Ut. 12.0 Indefinite -15- J-2 Forthcoming Large O f f e r i n g s , a s of February 3 (Cont'd) Amount (millions of d o l l a r s ) STATE AND LOCAL GOVERNMENT (Cont'd) Orleans Parish School D i s t . , La. Dade County, Florida New York State Housing Fin. Agency G.O. G.O. Rev. 10.0 1*6.0 100.0 Indefinite Indefinite Indefinite OTHER None * - - I n e l u d e d in t a b l e f o r f i r s t time. e / Estimated. 1 / Includes corporate and other i s s u e s of $15 m i l l i o n and over3 State and l o c a l government i s s u e s of $10 million and over. 2/ Includes f o r e i g n government and I n t e r n a t i o n a l Bank f o r Reconstruction and Development i s s u e s and non-guaranteed i s s u e s by Federal agencies. Note.—Deletions f o r reasons other than s a l e of i s s u e : Liberian Iron Ore, Ltd. $30.0 m i l l i o n bonds and stock issue—arrangements made f o r loans with the Export-Import Bank and f o r e i g n f i n a n c i a l i n s t i t u t i o n s . Exhibit K l i c l d o oh Nov: and Outstanding ELcctric Power Bonds, Rated Aa and A 1/ Data 1952-1959 - High Low - July Aug. Sept. Oct. Nov. Dec. I960 - 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 Dec. 7 • -Jan. .12, 18 25 Aa-rated offorlng yioldg A-rated. offering y i e l d s Amount above Amount above Actual Actual oeasoned yields (par cent) seasoned yields (per cent) (basis points) (basis points) 5.30 (12/8/59) 2.93 (3/31/54) £7 -3 *4.93 4.83 31 23 5.13^ *5.08 *5.30 36 42 63 5.09 4.82 4.91 It. 88 45 25 37 32 1.82 4.84 25 27 tlk 4.78 4.85 5.00 4.60 4.55 4.44 27 17 24 22 . 33 4o 5.65 (9A8/59) 3.00 (3A7/54) 123 -15 5.07 17 *5.65 5.33 60 *5:3^/ 4.97 5.14 5.10 13 51 28 35 5.20 26 33 11 1.93 4.88 11 8 24 4.95 4.80 ii.88 5.05 43 . 49 11 7 -2 •—Single observation, not an average. V Covers only 30-year f i r s t mortgage bonds, aa reported in Moody's Bond Survey. Except whew indicated, the actual yiold figure and the amount above seasoned yields are averages of offerings during the Indicated period and of the d i f f e r ences between thooe new offering yields and yields on seasoned issues of similar quality f o r the ecuia day. Average maturity for the seasoned issues varies frou 26 to 58 years. 2 / Provides f o r a 5-year period during which Issue may not be called for refunding at a lower coupon rato. Monthly averages so marked include one or more issues with such a provision. Other issues have no such provision. -17February 6 , 1961 P a r t I I - Canada Canada: Money and Capital Markets During January The d e c l i n e i n Canadian i n t e r e s t r a t e s which commenced i n December | continued i n January e s p e c i a l l y i n t h e s h o r t e r and intermediate s e c t o r s of t h e market. Treasury b i l l s and intermediate bonds dropped about UO b a s i s p o i n t s while longer-term Canadian bonds f e l l about 20 b a s i s p o i n t s . However, the McLeod, Young, Weir UO Bond Average remained about steady with November and December average i n d i c a t i n g l i t t l e change i n corporate and l o c a l government y i e l d s o Several f a c t o r s c o n t r i b u t e d t o the s u b s t a n t i a l easing i n s h o r t money r a t e s . The chartered banks added t o t h e i r b i l l holdings, p a r t l y because t h e i r loans i n January d e c l i n e d more than s e a s o n a l l y e Market r e p o r t s consider t h a t Bank of Canada buying of May 1961 i s s u e s and some growth i n corporate l i q u i d i t y c o n t r i b u t e d to t h e easing of money r a t e s . I n d u s t r i a l stock p r i c e s rose sharply i n January exceeding i960 h i g h s . The Canadian d o l l a r strengthened through January, r i s i n g above 101 (U.S. c e n t s ) a t end-January but eased to s l i g h t l y below 101 i n e a r l y February. There was a general i n c r e a s e i n bank l i q u i d i t y during the month. The January d e c l i n e i n l o a n s , seasonally a d j u s t e d , a t l e a s t temporarily i n t e r r u p t e d an 11-month expansion. At t h e end of January, the banks' l i q u i d a s s e t r a t i o a t 17»U per c e n t was 0.6 p e r cent above the e n d - o f December l e v e l . Money market. There was some d e c l i n e i n short-term i n t e r e s t r a t e s through January," with Treasury b i l l y i e l d s d e c l i n i n g about 30 b a s i s p o i n t s and s h o r t - t e r m acceptance r a t e s f a l l i n g somewhat more. The average y i e l d of the 3-month Treasury b i l l a t weekly a u c t i o n s f e l l from 3»3b p e r cent on January $ t o 3»0U per cent on January 26. The 6-month b i l l declined during t h i s period from 3<>63 per cent on January 6 t o 3*36 per cent on January 26 (see Chart and T a b l e ) . There were l a r g e purchases of Treasury, b i l l s by the chartered banks. They increased t h e i r b i l l holdings by $111 m i l l i o n ; on the other hand, the Bank of Canada sold $Ul m i l l i o n , and the general p u b l i c sold $U6 m i l l i o n (see Table). The average y i e l d on d a y - t o day loans declined from 2.81 per cent i n the week ending January k t o 2.60 per cent i n the week ending January 2$0 There was a minor narrowing of the spread of the Canadian over the United S t a t e s s h o r t Treasury b i l l y i e l d during t h e month from 1.07 per cent on January $ t o 0.87 per cent on January 26. However, the discount on . the forward Canadian d o l l a r kept the net i n c e n t i v e t o hold the Canadian b i l l on a covered b a s i s a t around 0.^0 p e r cent p e r annum, t h e l e v e l a t the end of Januaryo Yields on short-term commercial paper i n leading Canadian acceptance houses a l s o d e c l i n e d . There was a l s o some narrowing of the spread over r a t e s i n the United S t a t e s as a r e s u l t of g r e a t e r d e c l i n e s i n —18— the Canadian r a t e s . During the month the. spread remained close to 1 p e r cent p e r annum i n f a v o r of t h e Canadian p a p e r . The following t a b l e compares r a t e s i n leading Canadian and U.S. acceptance houses: January 5 12 19 26 Canada United S t a t e s Spread 3.50-3.75 3.50 3.50 3.25 2.63 2.63 2.63 2.38 1.00 0.87 0.87 0.87 Bond market. A general d e c l i n e i n bond y i e l d s accompanied the easing of s h o r t - t e r m r a t e s . One-year Canadian Government bonds declined up t o U6 b a s i s p o i n t s but i n t e r m e d i a t e - and long-term y i e l d s f e l l between 15 and 20 b a s i s p o i n t s as shown i n t h e following s t a t i s t i c s i Maturity Oct. 1962 S e p t . 1965 J a n . 1975-78 Sept. 1983 Yields (per c e n t per annum) Jan. 5 J a n . 26' 3.87 U.82 5.36 5.37 3-Ul U.68 5.2U 5.25 The spread between the y i e l d s on comparable Canadian and United S t a t e s Government s e c u r i t i e s was narrower a t the end of January than i t was on January 5 as noted i n the following t a b l e (Thursday y i e l d s f o r b i l l s and Wednesday y i e l d s f o r bonds): Jan. 5 91-day b i l l 182-day b i l l 8-year bond 20-year bond 35-year bond 1.07 1.15 0.99 1.37 1.59 J a n . 26 0.87 0.96 O.8I4 1.29 1.U8 The Bank of Canada sold $38 m i l l i o n of Government bonds during the month and the chartered banks sold another $37 m i l l i o n , while the general public purchased $23 m i l l i o n and the Government Accounts purchased $37 m i l l i o n . There was l i t t l e change i n l o c a l government and i n d u s t r i a l bond y i e l d s during the month. The McLeod, Young, Weir and Company U0 bond average was 5.69 per cent on February 1, about t h e same as the y i e l d on end-November and end-December. A comparison of t h e s e y i e l d s over r e c e n t months i s shown i n t h e following t a b l e : -19° McLeod, Young, Weir Bond Yield Average (per cent per annum) 10 10 10 10 U0 Dec. 1 Dec. 31 Feb. 1 1961 5.60 5.95 5.5k 5.62 5.68 5.68 5.97 5oU5 5.61 5.68 5.70 5.9b 5.19 5.62 5.6 9 Provincials Municipals Public u t i l i t i e s Industrials Bond y i e l d average During the f i r s t 23 days of January 1961, $66U»5 m i l l i o n of new s e c u r i t i e s were s o l d , c o n s i s t i n g l a r g e l y of new Government bonds» As noted i n t h e following t a b l e , new i s s u e s i n January were about half t h e volume i n November and December. Of which sold New i s s u e s t o U.S. Oct. 2h - Nov. 28 Nov. 28 - Dec. 31 Dec. 31 - Jan. 23 Source: $l,53k.6 m i l l . 11 1,310.5 " 66U.5 0.0 1U»0 . 1.0 A. E. Ames & Co., Ltd. In I960 as a whole t h e r e was a s l i g h t decrease i n new i s s u e s of Canadian s e c u r i t i e s and a very s u b s t a n t i a l r e d u c t i o n i n s a l e s of these s e c u r i t i e s i n the United S t a t e s . The t o t a l new i s s u e of s e c u r i t i e s was $10.5 b i l l i o n compared with $11.7 b i l l i o n the year b e f o r e . I n i 9 6 0 t h e r e was an i n c r e a s e i n new corporate and municipal bond i s s u e s while new P r o v i n c i a l and Commonwealth i s s u e s showed a d e c l i n e . Of the t o t a l new i s s u e s , $252.2 m i l l i o n were sold i n the United S t a t e s , j u s t over half of the $U72.9 m i l l i o n of new i s s u e s sold i n t h e U.S. i n 1959» This decrease was due s o l e l y to the d e c l i n e i n the s a l e of new P r o v i n c i a l s e c u r i t i e s i n t h e United S t a t e s . A new $100 m i l l i o n issue of Government of Canada 3-year bonds was announced on January 18 and was oversubscribed with evidence of strong f o r e i g n demand. The new i s s u e i s the f i r s t step i n f i n a n c i n g the'$525 million i s s u e which w i l l mature May 1 , 1961. The o f f e r i n g was f o r nonc a l l a b l e U per cent bonds, a t 98.50, t o y i e l d U.50 per cent t o m a t u r i t y on May 1 , I 9 6 U . Another $50. m i l l i o n of t h i s i s s u e w i l l be taken by the Bank of Canada i n exchange f o r an equal amount of the May 1, 1961 m a t u r i t y . The Minister of Finance announced t h a t , as a r e s u l t of the s u c c e s s f u l Savings Bond d r i v e , t h e Government has s u f f i c i e n t funds t o permit i t t o r e t i r e t h e remaining $375 m i l l i o n of the maturing i s s u e and t o proceed i n an o r d e r l y f a s h i o n with new bond o f f e r i n g s i n the coming months. Chartered bank loans and money supply. During January t h e r e was a $39 m i l l i o n decline i n general bank loans on a s e a s o n a l l y a d j u s t e d b a s i s , r e p r e s e n t i n g the f i r s t d e c l i n e i n 10 months„ General bank loans have r i s e n s t e a d i l y since March I960 (except f o r no change i n October). The t o t a l r i s e since March was $216 m i l l i o n , about U.5 per c e n t . The money supply -20- f e l l $97 m i l l i o n i n January following the seasonal r i s e of $123 m i l l i o n i n December. During a l l of I960 the money supply rose $U28 m i l l i o n , or 3 . 3 per c e n t . Stock market. The r i s e i n i n d u s t r i a l stock p r i c e s on the Canadian exchanges, which began l a t e i n November, continued through January. In January the Toronto index rose 2.9 per cent and the Montreal index rose 6 per c e n t s compared with a r i s e of 6.6 p e r cent i n t h e New York Standard & Poor i n d u s t r i a l index, as rioted i n the following t a b l e • Toronto Montreal New York Standard I960 - High Low 532 .56 172.38 277.1 250.3 61 .U9 55.98 January 3 6 10 13 17 20 23 .... 27 " 52U.13 529.69 533.00 53U.25 535.91 2L0.63 5U2.08 239.5:0 276.1 282.0 285.6 290.2 287.0 292.1 292.5 292.7 60.87 61.86 63.07 62.77 63.U6 63.86 6U.86 Foreign exchange. The Canadian d o l l a r strengthened through January from 100.59 (U.S. c e n t s ) on January 3 to 101 (U.S. cents) on January 31, following heavy g r a i n s a l e s abroad a t the end of the month. On February 3 the Canadian d o l l a r closed a t 10008U (U.S. c e n t s ) . There was a narrowing of the forward discount on the Canadian d o l l a r from O.UU per cent per annum on January 5, t o 0.37 per cent on January 26. On February 2, t h e discount narrowed f u r t h e r t o 0.2$ per c e n t . B r i t i s h Commonwealth Section Division of I n t e r n a t i o n a l Finance Board of Governors of the Federal Reserve System -21- S e l e c t e d Canadian Money Market and Related Data 3-mo. Treaa. b i l l s Canada Spread */ U . S J y over U.S. 1959 - High Low 1960 - High Low Jan. 5 12 19 26 Feb. 2 6.16 3.25 5.1U 1.68 3«3U 3.18 3.22 3.0U 3.13 Canadian d o l l a r Spot 3-no. discount ( - 1 forward premium (+)<y U.U9 2.80 U.63 2.10 2.96 0.30 1.62 -0.82 105.51 102.58 105.27 100.33 2.27 2.27 2.27 2.17 2.31 1.07 0.91 0.95 0.87 0.82 100.U7 100.63 100.66 101.05 100.88 — —— — 100.36 100.56 100.53 100.95 100.81 ~ Net i n c e n tive to hold Can. billg/ . — 0.99 -0.91 1.99 -0.57 -o.ua 0.63 0.66 0.U5 0.50 0.57 -0.25 -0.50 -0.37 -0.25 a / Average y i e l d a t weekly tender on Thursday. %f V rConposite market y i e l d f o r the U.S. Treasury b i l l on Thursday c l o s e of b u s i n e s s , c / In U.S. c e n t s . cf/ Spread between spot r a t e and 3-month forward Canadian d o l l a r on Thursday c l o s i n g , expressed a s per c e n t per annum. e / Spread over U.S. Treasury b i l l (column 3 ) , p l u s 3-month forward discount or premium (column 6 ) . S e l e c t e d Government of Canada S e c u r i t y Yields 6-mo. Treaa . b i l l s Spread over Canada u.s^/ 1959 - High Low I 9 6 0 - High Low Jan. 5 12 19 26 Feb. 2 J 0/ ty e/ y g/ ry 6.2k 5.11 .5.33 1.99 3.63 3.18 3.53 3.36 3.U8 Intermediate bonds (8 y r . ) Spread over Canyia U.S.4/ Long-term bonds (20 year) (35 year) Spread Spread Canada Canada a a 1.36 0.85 5.05 U.73 5.28 U.68 1.61 0.95 1.37 1.29 1.29 1.29 1.29 5.23 5.20 $.20 5.18 5.19 1.59 1.50 1.U7 • 1.U8 1.50 5.30 1.37 —0.86 5.27 U.50 5.55 U.09 1.11 0.21 5.U2 U.63 1.15 0.98 1.06 0.96 0.98 U.70 U.68 U.73 U.72 U.68 0.99 0.82 0.78 •0.8U 0.82 5.19 5.17 5.20 5.18 5.18 u.uu —— Average y i e l d a t weekly tender on Thursday. Spread between Canadian auction r a t e and composite market y i e l d of U.S. on c l o s e of business Thursday. Government of Canada 2 - 3 A per cent of June 1967-68# Spread over U.S. Government 2 - 1 / 2 per c e n t of 1963-68. Government of Canada 3 - 1 / k per cent of October 1979* Spread over U.S. Government 3 - l A per c e n t of 1978-83. Government of Canada 3 - 3 A per c e n t of September 1996 - March 1998. Spread over U.S. Government of 1995. — Canada: Changes i n D i s t r i b u t i o n of Holdings of Canadian Government D i r e c t and Guaranteed S e c u r i t i e s ( m i l l i o n s of Canadian d o l l a r s , p a r v a l u e ) Bank of Canada Treas. Bonds biH^ 1960-Jan. Feb. March April May June July Aug. Sept. Oct. Nov. Dec. 196l-Jan. Source* Bank Government Total General p u b l i c Savings T r e a s . bonds bills ;Bonds Chartered banks Treas• Bonds + 81 - 1 - 2U -115 -103 - 23 - 11 +11a - 6U - 5U + 23 + 69 - Uo - 9 + 78 + 2k 8 - 9 + 77 - Uo - 59 - 7h + Uo + 31 + 19 - 3 + 78 + 36 + 3k - 23 + 6 + 90 - 2 - U3 + 66 6 + 37 - 5U + 1 + 15 - 8 - uu + 9 - 8 - 87 - 17 +111 + 15 - kl - 38 of Canada, Weekly F i n a n c i a l S t a t i s t i c a l - 89 + 55 + + + + + - k 79 17 k 9 27 28 12 + U5 +126 + 29 - 3k - 37 + - 3 29 31 26 29 31 19 26 - lU - 5 +630 - 32 - 2 + + - 19 59 78 11 97 8 58 k2 - la 0 + 55 + 12 - I46 + 95 +165 + 98 + 30 - 18 + U6 - 5U - 80 - 36 + 72 - k6 - 78 + 2? S e l e c t e d Canadian F i n a n c i a l S t a t i s t i c s ( i n m i l l i o n s of Canadian d o l l a r s or p e r c e n t ) Nov. Monthly Dec. Jan. l o Money s u p p l y ^ / 1,808 Currency 1,718 1,838 Deposits 11,302 11,W n,L55 Total ^ 13,166 13,lU0 13,263 + 123 Change i n p e r i o d - 2Ul 97 628 U80 2 e Govt. d e p o s i t s 5U8 3 e General bank l o a n s £ / 5,027 5,117 5,078 + 56 + 90 Change i n p e r i o d 39 Uo New s e c u r i t y issuesj/ 1,310.5 1,013.8 30L.5 0.0 1.0 Of which s o l d i n U.S. 1U.0 5» Govt. s e c u r i t i e s o u t 17,760 standing 17,239 17,99U Treasury b i l l s 1,985 1,985 1,985 12,161 Bonds 12,377 12,179 Savings bonds 3,632 3,596 3,1*3 6 . C h a r t e r e d bank l i q u i d i t y 1,017 1,027 Cash r e s e r v e 998 8.2 8.1 . Cash r a t i o 8.1 Liquid a s s e t s 2,189 2,093 2,123 16.8 -.Liquid a s s e t r a t i o 17.3 17 .U 1 / Less f l o a t , end of p e r i o d . 2 / Monthly e s t i m a t e s only a r e s e a s o n a l l y a d j u s t e d , 3 / Sources A. E. Ames & Co., L t d . J a n . 12 1,756 ll,Wil 13,197 - 188 526 U,99li 51 17,759 1,985 12,16U 3,610 1,031 8.2 2,173 17.2 J a n . 19 J a n . 26 1,712 11,399 13,llil 56 U87 1,981 13 1,718 11,as 13,166 + 25 U80 L,981 • 5 17,750 . 1,985 12,163 3,603 17,739 1,985 12,161 3,593 : 1,021 8.1 2,16$ 17.2 1,030 8.2 2,193 17 .U -23New I s s u e s of Canadian Government, Local Government, and Corporate S e c u r i t i e s ( m i l l i o n s of Canadian d o l l a r s ) I960 Government - d i r e c t Government - g u a r a n t e e d Provincial - direct P r o v i n c i a l - guaranteed Municipal Corporation Total Less s h o r t - t e r m (under 1 y e a r ) 8,6lii.O 250.0 279.0 381.L 1*71.1* U99.8 10,1*95.6 6,1*90.0 I*,005.6 1959 1958 9,615.5 1*50.0 3W*.l* 1*36.1* 1*20.6 1*20.1 11,687.0 6,91*7.9 U,739.0 Hi,830.0 300.0 3U0.3 U51.0 1*61* .0 769.2 17,151*45 6,761.0 10,393.5 159.0 151.2 112.1* 50.3 1*72.9 125.0 70.0 175.3 116.7 1*87.0 Of which, s o l d i n t h e United S t a t e s Provincial - direct P r o v i n c i a l - guaranteed Municipal Corporation Source: 25.0 67.0 110.9 j y 252.2 A. E . Ames & C o . , L t d . , Weekly Bond S a l e s Summary. CANADA THREE-MONTH Thursday figure. TREASURY - BILL - UNITED STATES RATES \ ^ - A/v 1 RATE 1 i i DIFFERENTIAL i AND %Vvi .v -V — - A . A i 1 FORWARD 1 1 CANADIAN 1 1- 1 z 1 1 DOLLAR SFIEAD IN FAVOt Of CANADA RATE DIFFERENTIAL WITH FORWARD EXCHANGE- COVER NIT INCENTIVE IN FAVOR OF CANADA i i SELECTED STOCK CHARTERED BANK ASSETS BANK DEPOSITS - LESS FLOAT MARKET Millions of Dollori -26- February 6 , 1961 Appendix 1 Switzerland: Money and C a p i t a l Markets- i n I960 EiSS. General background Basic c h a r a c t e r i s t i c s of t h e money market The money market i n I960 C a p i t a l market developments i n i 9 6 0 - 26 28 29 30 General background 0 To u n d e r s t a n d t h e p o s i t i o n of S w i t z e r l a n d as an i n t e r n a t i o n a l f i n a n c i a l c e n t e r i t i s n e c e s s a r y t o know some of t h e s p e c i a l c h a r a c t e r i s t i c s of Swiss money and c a p i t a l m a r k e t s 0 Outstanding among t h e s e c h a r a c t e r i s t i c s i s t h e c o m p a r a t i v e l y low l e v e l of i n t e r e s t r a t e s normally p r e v a i l i n g as evidenced i n t h e f o l l o w i n g t a b u l a t i o n of average y i e l d s on l o n g - t e r m government bonds, i n p e r c e n t p e r annum,, Country Switzerland United S t a t e s Canada France Germany Netherlands United Kingdom * Source: 19 5 6 19 5 7 19 5 8 19 5 9 I 9 6 0* 3 oil 3o06 3.58 5.28 6.2 3.8k U.73 3.6U 3.U7 U.10 5.92 3.19 3.U3 U.22 5.68 6.3 U.32 U.98 3.08 U.07 U.86 5.27 5.9 U.12 U.82 3.11 U.03 5.03 5.16 6.5 U.22 5.U1 606 U.58 U.98 Average through November (through October f o r France and Germany) 0 I n t e r n a t i o n a l Monetary Fund, I n t e r n a t i o n a l F i n a n c i a l S t a t i s t i c s , January 1961, p . 29. The c o m p a r a t i v e l y low l e v e l of Swiss i n t e r e s t r a t e s r e s u l t s mainly from two cond i t i o n s s t h e l a r g e volume of s a v i n g s ( r e l a t i v e t o i n t e r n a l Swiss needs f o r c a p i t a l ) a v a i l a b l e i n t h e Swiss m a r k e t , and o r i g i n a t i n g i n both Swiss and f o r e i g n sources5 and r e s t r i c t i o n s on t h e o u t f l o w of c a p i t a l from S w i t z e r l a n d , C o n t r o l of c a p i t a l o u t f l o w t a k e s t h e form mainly of t h e requirement t h a t a l l f o r e i g n placements i n S w i t z e r l a n d of s h a r e o r bond i s s u e s amounting t o SF 10 m i l l i o n ( # 2 , 3 m i l l i o n ) o r more, and a l l term l o a n s (12 months or l o n g e r ) of t h e same o r l a r g e r magnitude t o f o r e i g n e r s , must have t h e a p p r o v a l of t h e -27- Swiss National B a n k . i / I t i s t r u e t h a t d i r e c t a c q u i s i t i o n of f o r e i g n s e c u r i t i e s i s u n r e s t r i c t e d (except t h a t admission of f o r e i g n s e c u r i t i e s to Swiss stock exchanges can be temporarily discontinued)$ but the existence of t h i s freedom app a r e n t l y does not f r u s t r a t e t h e purposes of t h e c o n t r o l of new f o r e i g n i s s u e s on t h e Swiss market and on term lending abroad. The requirement of Swiss National Bank approval of such i s s u e s and lending would obviously be a mere f o r m a l i t y i f approval were granted more or l e s s automatically; but t h i s c o n t r o l i s anything but a f o r m a l i t y . "The Swiss market has t h e d e f e c t s of i t s q u a l i t i e s . The low i n t e r e s t r a t e s , i t s g r e a t advantage . . . can only be preserved by l i m i t i n g t h e c a l l s made upon t h e market, which i n consequence i s f a r from being an open one. There i s always a long queue of would-be borrowers . . . The normal p r a c t i c e of the a u t h o r i t i e s i s t o allow a t most one f o r e i g n i s s u e a month and the i s s u e i s u s u a l l y r e s t r i c t e d t o a maximum of around m i l l i o n /around $l£ million/% * (London F i n a n c i a l Times, October 3 , I960, p . l . ) E 7 In f a c t , f o r t h e two y e a r s p r i o r t o August 1950 t h e Swiss market was completely closed t o f o r e i g n borrowers. There appear t o be two main motives f o r t h e b a s i c Swiss p o l i c y of l i m i t i n g c a p i t a l outflow. The f i r s t i s t h e politico-economic o b j e c t i v e of keeping mortgage r a t e s r e l a t i v e l y low a t a l l t i m e s . The second i s t h e Swiss d e s i r e t h a t Switzerland be a center of i n t e r n a t i o n a l f i n a n c e . The a u t h o r i t i e s apparently f e e l t h a t i n the absence of r e s t r a i n t on Swiss lending and investment abroad, the flow of Swiss capital—which, although l a r g e r e l a t i v e t o Swiss i n t e r n a l needs, i s small r e l a t i v e t o those of l a r g e r countries—would be completely swallowed up by f o r e i g n needs f o r c a p i t a l , and the Swiss c a p i t a l market would cease t o have a s i g n i f i c a n t i n f l u e n c e of i t s own upon the world f i n a n c i a l scene. In addition to these e s s e n t i a l l y permanent motives f o r l i m i t i n g c a p i t a l outflow, the Swiss have another motive operative only at c e r t a i n times and under c e r t a i n c o n d i t i o n s . Given the continuing tendency f o r Swiss i n t e r e s t r a t e s t o be lower than r a t e s i n most other c o u n t r i e s , and t h e r e l a t i v e smallness of t h e Swiss c a p i t a l market, i t appears t h a t when t h e economy i s booming and l i q u i d i t y i s squeezed t h e r e i s a tendency f o r c a p i t a l outflow t o put g r e a t e r upward p r e s sure on i n t e r e s t r a t e s than t h e a u t h o r i t i e s f e e l i s d e s i r a b l e . This was t h e reason f o r t h e closure of t h e Swiss c a p i t a l market t o f o r e i g n borrowers from mid-1956 t o mid-1958. A s p e c i a l motive f o r Swiss r e s t r i c t i o n of c a p i t a l exports i n c e r t a i n d i r e c t i o n s during the p a s t two years should also be noted. In connection with 1/ Loi ffedferale sur l e s banques e t l e s c a i s s e s d*&pargnes, November 8, 193b, A r t i c l e 8*. Under c e r t a i n conditions t h e National Bank may a l s o s u b j e c t smaller i s s u e s and loans t o p r i o r approval. 2 / From Table 3 annexed i t can be seen t h a t f o r e i g n i s s u e s on t h e Swiss market did not exceed t h e r a t e i n d i c a t e d above during the f i r s t seven or e i g h t months of I960, but were a t a considerably higher r a t e during the next few months. This higher r a t e was probably due t o s p e c i a l circumstances t o be noted below* -28- t h e " s p l i t * between the s i x c o u n t r i e s of t h e European Common Market, on the one hand, and other-European c o u n t r i e s (including Switzerland) t h a t wanted t o e s t a b l i s h a l a r g e r grouping of c o u n t r i e s , Switzerland imposed an informal but u n mistakable ban on new f l o t a t i o n s i n the Swiss market by Common Market c o u n t r i e s . x However, t h i s was l i f t e d as of the beginning of 1961, i n p a r t because of t h e i n t e r e s t of Swiss o f f i c i a l s i n c u r t a i l i n g domestic l i q u i d i t y , which has become very h i g h . ^ ' This l a s t point i l l u s t r a t e s t h e other main tendency i n Swiss f i n a n c i a l p o l i c y , which i s t h e opposing one of r e s t r i c t i n g the inflow of c a p i t a l whenever the monetary a u t h o r i t i e s f e e l t h e domestic s i t u a t i o n i s excessively l i q u i d . The , Swiss National Bank has few means, other than "moral s u a s i o n , * f o r r e s t r a i n i n g 1 i n t e r n a l c r e d i t expansion once t h e banks have acquired the means f o r such expansion. Even i f i t did have such means, moreover, t h e r e would be strong i n t e r n a l opposition t o e f f o r t s t o r e s t r a i n c r e d i t expansion by means t h a t might r a i s e i n t e r e s t r a t e s s u b s t a n t i a l l y e As a r e s u l t , the Swiss technique of r e s i s t i n g i n f l a t i o n a r y pressure by monetary means c e n t e r s a t times i n e f f o r t s t o r e s t r a i n the inflow of f o r e i g n funds or reflows of domestic Swiss f u n d s . In g e n e r a l , aside from t h e ban on Common Market i s s u e s j u s t mentioned, Swiss monetary p o l i c y s i n c e the l a t t e r p a r t of 1958 has emphasized t h i s a l t e r n a t i v e aspect of policy—namely [f t h a t of discouraging c a p i t a l inflows and encouraging c a p i t a l outflows, as a means ^ of r e s t r a i n i n g the r i s e i n the l i q u i d i t y of Swiss banks. x In summary, s h i f t s i n o f f i c i a l Swiss a t t i t u d e s toward inflows and outflows of c a p i t a l g e n e r a l l y do not s i g n i f y changes i n underlying Swiss p o l i c y , but r e f l e c t r a t h e r the continued p u r s u i t of t h e same p o l i c y ends—low i n t e r e s t r a t e s , and r e s t r a i n t of i n f l a t i o n a r y pressure—by means t h a t vary with v a r i a t i o n i n t h e conditions f a c e d . 3^ v,l! | However, the movement of short-term money i n t o or out of Switzerland i s i n f l u e n c e d by f a c t o r s a d d i t i o n a l t o i n t e r e s t - r a t e d i f f e r e n t i a l s . One leading f a c t o r i s the d e s i r e f o r a " s a f e haven" f o r funds, which sometimes brings about a s u b s t a n t i a l n e t inflow i n t o Switzerland even when i n t e r n a t i o n a l i n t e r e s t - r a t e d i f f e r e n t i a l s would suggest the l i k e l i h o o d of a n e t outflow. Secondly, year-end "window d r e s s i n g " leads t o a pronounced inflow of funds i n t o Switzerland a t t h e I p Basic c h a r a c t e r i s t i c s of t h e money market. Paradoxical as i t may seem, P Switzerland does not have a well-developed money market. This i s due e s s e n t i a l l y t o what has been c a l l e d the "permanent l i q u i d i t y " of t h e Swiss economy. Trading and i n d u s t r i a l firms do a l a r g e p a r t of t h e i r own short-term f i n a n c i n g , and r e l y §• mainly on current-account advances from the banks f o r t h e remaindera hence t h e f volume of commercial b i l l s i n existence i s very small. The government 1 s need Igr f o r short-term f i n a n c i n g i s small r e l a t i v e t o t o t a l government d e b t , and i s l a r g e l y covered by the banks without recourse t o p u b l i c i s s u e s of government s e c u r i t i e s . As a r e s u l t , t h e r e i s no market i n Treasury or commercial b i l l s . The main a v a i l a b l e ^ . - ' i n d i c a t o r s of money-market conditions are call-money r a t e s and t h e range of r a t e s V:<y' paid by Zurich banks f o r three-month d e p o s i t s (see Table 1 annexed)5 and a t times these r a t e s are merely nominal. Since the supply of short-term money a t t h e d i s p o s a l of Swiss banks i s u s u a l l y much g r e a t e r than the demand f o r such funds i n Switzerland, even at t h e low r a t e s obtaining i n the Swiss market, a subs t a n t i a l p a r t of t h i s money i s u s u a l l y invested i n other f i n a n c i a l c e n t e r s . ^4' 3 -29° end of the y e a r , which i s reversed during t h e f i r s t q u a r t e r of the following y e a r . F i n a l l y , t h e dost of forward cover may of course eliminate what would otherwise i be an i n c e n t i v e t o move funds i n response t o i n t e r e s t - r a t e d i f f e r e n t i a l s . A l l t h r e e of t h e s e f a c t o r s a f f e c t e d the performance of t h e Swiss money market during I960. The money market i n I960. During t h e f i r s t h a l f cf I960 the money market was not excessively l i q u i d . There was a continued r i s e i n economic a c t i v i t y , and up u n t i l mid-May a continued outflow of f u n d s . During the f i r s t h a l f of the y e a r , current-account balances a t t h e Swiss National Bank were drawn down by about SF 650 m i l l i o n ($151 m i l l i o n ) . As Table 1 annexed shows, s h o r t - t e r m i n t e r e s t r a t e s were p e r c e p t i b l y higher during t h i s period than during most of 1959» The c a l l money r a t e averaged s l i g h t l y l e s s during the second q u a r t e r than during the f i r s t , but at 2 per cent the r a t e paid on three-months' d e p o s i t s was higher than during the f i r s t q u a r t e r . Beginning i n t h e second week of J u l y the s i t u a t i o n changed a b r u p t l y . During t h a t week the f o r e i g n exchange r e s e r v e s of the Swiss National Bank r o s e by SF 153 m i l l i o n . The heavy i n f l u x of c a p i t a l continued through the f i r s t week of August, and r e s u l t e d i n a r i s e of SF 950 m i l l i o n ($220 m i l l i o n ) , or n e a r l y 12 per c e n t , i n t h e gold and f o r e i g n exchange r e s e r v e s of t h e Swiss National Bank; i n t u r n , " g i r o " balances ( i . e . working balances of the banks, of t r a d e , and of i n d u s t r y ) a t t h e National Bank r o s e during t h e same p e r i o d by SF 962 million— .nearly 50 per cent more than t h e decline i n t h e s e balances during t h e f i r s t h a l f year. I n t e r e s t r a t e d i f f e r e n t i a l s c o n t r i b u t e d t o t h e inflow of funds i n t o Switzerland i n J u l y and e a r l y August. Although i n preceding months t h e r e had been an i n c e n t i v e t o s h i f t short-term funds from New York t o London, i t i s probable t h a t some "Swiss-controlled funds remained i n New York u n t i l t h e end of June a t l e a s t , because u n t i l then i t was s t i l l p o s s i b l e t o c l e a r 1 per cent or b e t t e r (even on a covered b a s i s ) i n New York, as compared with what could be earned on t h r e e months 1 money i n Switzerland. This was due t o the f a c t t h a t although U.S. Treasury b i l l r a t e s were d e c l i n i n g , t h e discount on forward d o l l a r s i n Zurich was also dec l i n i n g 5 and during t h e l a s t week of May and throughout June i t was replaced by a premium. With the disappearance of t h i s premium i n J u l y , however, the covered spread between New York and Zurich also a l l b u t disappeared. As was c l e a r l y r e a l i z e d a t t h e t i m e , however, the main causes o£ the sharp inflow of funds i n t o Switzerland were the Congo.and Cuban c r i s e s t h a t developed a t t h a t t i m e . These causes may also have been r e i n f o r c e d by f e e l i n g s of u n c e r t a i n t y i n some q u a r t e r s regarding t h e outlook f o r t h e d o l l a r . Whatever the causes of t h e i n f l o w , t h e r e s u l t i n g r i s e i n l i q u i d i t y was viewed by the monetary a u t h o r i t i e s as dangerous. They t h e r e f o r e proposed t o the banks a "gentlemen's agreement," which came i n t o e f f e c t i n mid-August. Under t h i s agreement the banks agreed not t o accept f o r e i g n demand d e p o s i t s , not t o pay i n t e r e s t on new f o r e i g n d e p o s i t s , and were r e q u i r e d t o charge l / h of 1 per cent per calendar q u a r t e r f o r new f o r e i g n d e p o s i t s of l e s s than s i x months' d u r a t i o n . Deposits t o c e r t a i n small accounts and d e p o s i t s t o accounts used t o make normal commercial and d e b t - s e r v i c i n g payments were exempted from a l l or p a r t of -30- t h e provisions of t h i s agreement. Although the agreement went i n t o f o r c e on August 18, i t s provisions were not e f f e c t i v e l y applied u n t i l s e v e r a l weeks t h e r e a f t e r , because of t h e length of time required by the banks t o determined the owner ship and c h a r a c t e r of t h e i r d e p o s i t s . I t was estimated Switzerland during J u l y was September the National Bank Treasury and t h e commercial Swiss Treasury c e r t i f i c a t e s s t e r i l i z e most of the Swiss at the time t h a t about h a l f the c a p i t a l t h a t came i n t o Swiss-owned r a t h e r than foreign-owned. In midt h e r e f o r e made s p e c i a l arrangements with t h e Swiss banks t o place SF U00 m i l l i o n ($91 m i l l i o n ) worth of with the commercial banks on October 1 , i n order t o p o r t i o n of t h e c a p i t a l inflow. Another heavy inflow of funds into Switzerland occurred i n the t h r e e week period from mid-October through November 7$ during which SF I488 m i l l i o n ($113 m i l l i o n ) i n d o l l a r s were sold t o t h e National Bank. I t i s believed t h a t t h e s e were mainly Swiss-owned d o l l a r s and the d o l l a r deposits of Swiss bank customers. The r e f l u x was touched off by nervousness over the London "gold r u s h " of mid-October, and was r e i n f o r c e d by awareness t h a t s u b s t a n t i a l funds would have t o be brought home soon i n any case f o r year-end "window-dressing" purposes. Swiss gold and f o r e i g n exchange r e s e r v e s continued t o r i s e i n December, and a t year-end exceeded SF 10 b i l l i o n ($2.3 b i l l i o n ) f o r the f i r s t time on record. The monetary a u t h o r i t i e s apparently did not f e e l i t necessary t o develop s p e c i a l measures t o absorb the increase i n l i q u i d i t y caused by the inflow of funds from abroad during the l a s t q u a r t e r . As was noted e a r l i e r , however, they did speed up somewhat the r a t e of issuance of f o r e i g n loans during t h e closing months of t h e y e a r . (See Table 3 . ) I n t e r e s t r a t e s i n Switzerland remained q u i t e s t a b l e throughout 1960. One of the few n o t i c e a b l e movements was the sagging of short-term r a t e s and also of government bond y i e l d s i n August, following t h e massive inflow of f o r e i g n funds in July. C a p i t a l market developments i n I960. Data on new i s s u e s on the Swiss c a p i t a l market through the t h i r d q u a r t e r of I960 are shewn i n Table 2 annexed; f u l l information i s not y e t a v a i l a b l e f o r t h e f o u r t h q u a r t e r . T o t a l new i s s u e s through September amounted t o SF 1857 m i l l i o n ($U32 m i l l i o n ) , and the t o t a l f o r the y s a r may have f a i l e d t o reach the 19!?9 record of SF 2526 m i l l i o n . The 1959 r e s u l t s were due t o : (1) a sharp i n c r e a s e i n f o r e i g n bond i s s u e s (due p a r t l y a t l e a s t t o the f a c t t h a t the Swiss market had been closed t o f o r e i g n borrowers from mid-1956 t o mid-1958) which more than o f f s e t a d e c l i n e i n new Swiss bond issues5 and (2) t o an even g r e a t e r e x t e n t , t o a near-doubling of Swiss share issues. So f a r as public o f f e r i n g s alone are concerned, however, a new peak may have been reached i n I960, as the following f i g u r e s f o r the f i r s t 11 months of each year suggest ( f i g u r e s i n SF m i l l i o n s ) s -31New p u b l i c i s s u e s (January through November) New i s s u e s January through November Swiss 1 Foreign | T o t a l 1957 1958 1959 I960 1077 815 686 890 Bo n d s 5 87 U80 508 Swiss 1082 901 1166 1398 176 111 35U 17U Total Retirement of securities Net new m»n#y 1258 1015 1520 1572 21U 650 155 26U 10W 365 1365 1308 As may be seen from Table 2 annexed, t o t a l new i s s u e s declined sharply during t h e t h i r d q u a r t e r . The d e c l i n e was e n t i r e l y i n p u b l i c l y - o f f e r e d i s s u e s ) p r i v a t e o f f e r i n g s rose s l i g h t l y , , A t h i r d - q u a r t e r d e c l i n e i n i s s u i n g a c t i v i t y i s a normal tendency. The f o u r t h - q u a r t e r r i s e i n new i s s u e s l a s t y e a r — e s p e c i a l l y of new f o r e i g n issues—may have been unusually s t r o n g , because of the d e s i r e ef the a u t h o r i t i e s t o reverse some of t h e f o r e i g n exchange inflow during t h e l a s t h a l f of the y e a r . The following t a b u l a t i o n shows t h a t t h e Swiss Government i s net normally a borrower on t h e Swiss c a p i t a l market, although t h e cantonal and cemmnnal governments do f i g u r e s i g n i f i c a n t l y as borrowers. In I960 as i n preceding y e a r s , the e l e c t r i c power i n d u s t r y was the l a r g e s t borrower i n the market. The following f i g u r e s ( i n SF m i l l i o n s ) give t o t a l i s s u e s (both p u b l i c l y and p r i v a t e l y marketed) including conversionsg Borrower Central government Cantons & l o c a l gov. E l e c t r i c power Manufacturing Trade Banks Mortgage companies Other Total 1/ F i r s t nine months only. 19 2 7 1 9 5 8 19 5 9 80 209 360 23 f>0 U08 237 U5 1 9 6 o3/ 313 555 62 8 66 167 209 351 85 16 91 313 .136 110 110 •M 1U12 1286 1201 779 97 298 22 The coupon r a t e on Swiss domestic bond i s s u e s during I960 ranged from 3 - 1 A per cent t o 5 per c e n t , with most i s s u e s f a l l i n g between 3-1/2 and h per c e n t . The coupon r a t e on f o r e i g n i s s u e s ranged from ij. t # It-1/2 p e r c e n t , with a U-l/2 p e r cent r a t e on most i s s u e s . The f o r e i g n i s s u e s placed i n t h e Swiss market i n I960 are l i s t e d i n Table 3 . They included twe I.B.R.D. i s s u e s f o r SF 60 m i l l i o n each* Long and medium°term i n t e r e s t r a t e s . Long-term i n t e r e s t r a t e s , as measured by the average y i e l d on Federal Government and Federal Railway bonds, had declined i n 1958 and e a r l y 1959, but rose again a f t e r t h a t , i n p a r t because of a considerable i n t e n s i f i c a t i o n of economic a c t i v i t y . In I960 the average d e c l i n e d , from 3.32 per cent i n January to 2*95 p e r cent i n August, but rose again somewhat subsequently, averaging 3.0li per cent during t h e l a s t q u a r t e r of t h e y e a r . Medium-term r a t e s a l s o rose during t h e l a s t h a l f of 1959, and were r e l a t i v e l y s t a b l e i n I960. Stock market. The Swiss National Bank's index of i n d u s t r i a l share p r i c e s i n Switzerland rose 27 per cent from the end of 1958 t e t h e end of 1959. In I960 the r i s e u n t i l e a r l y September was much s h a r p e r , as t h e following f i g u r e s indicates I n d u s t r i a l share index: market value i n % of p a i d - i n value Dec, 31, 1958 Dec. 31, 1959 March 25 s I960 June 2U Sept. 9 Sept. 30 Oct. 28 Nov. 25 Dec. 30 599 759 759 956 1123 1066 1062 105U 1068 By September 9* the index had r i s e n U8 per cent from the end of 1959I and d e s p i t e some subsequent d e c l i n e , t h e index a t year-end was s t i l l w e l l above y e a r - e a r l i e r l e v e l s . The break i n mid-September was a t t r i b u t e d t o i n t e r n a t i o n a l p o l i t i c a l t e n s i o n s and t o extensive p r o f i t - t a k i n g . Although the r i s e i n Swiss share p r i c e s l a s t year was very marked, s e v e r a l other European stock exchanges a l s o moved up s h a r p l y ; i n I t a l y and Germany the advance was even g r e a t e r than i n Switzerland. European Section Division of I n t e r n a t i o n a l Finance Board of Governors of t h e Federal Reserve System Table 1 . I n t e r e s t r a t e s i n Switzerland Central bank discount ratei/ Call money rateg/ 111 New il9S6 1957 1958 1.50 2.50 2.$0 1.U5 1.80 1.19 n.a. 1.51 3.00 3.56 3.57 3.05 3.60 3.U9 3.11 3.61* 3.19 3.51* 3.85 U.08 ;.9S9 J 1 s t quar. 1 2d • j 3rd • | Uth " 2.00 2.00 2.00 2.00 1.01 "T9& .9h 1.01 1.15 1.39 r n 1.19 1.U9 1.79 3.02 530 2.98 2.95 3.05 2.99 ?30 2.87 z 3.02 3.18 3.08 o r 3.06 3.12 3.21 3.86 OTT 3.86 3.78 3.76 ,*960 % January February March April 1 May | June I July 1 Aug. y Sept. ' Oct. , Nov. Dec. 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 3.23 3.30 3.32 3.32 3.32 3.32 3.33 3.3U 3.33 3.35 , 3.351/ 532 3.32 3-32 3.32 3.32 3.32 3.32 3.32 3.35 3.35 3.3L, 3.31*1/ 33? 3.30 3.23 3.13 3.07 3.05 3.00 2.95 3.0Q 3.03 3e°5 Q / 3.01+8/ 3.76 J7fZ 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76 3.76-, 3.76Z/ Period r e 1.20 1.15 1.00 1.10 1.20 1.20 1.10 1.00 1.00 1.00 Thre* months' deposit rated/ 11/2-2 11/2-2 1 3A - 2 1 3A 2 2 2 1 1/2 - 1 3 A 1 3A 1 3A - 2 1 1 / 2 - 1 3/U 2 Interest on savings bonds 12 pantpnal 5 large banks!*/ banksS/ V End of p e r i o d . 2 j Rate f o r interbank l o a n s . Figures are p e r i o d averages of h i g h e s t and lowest quotations of each week i n Zurich. 3 / Monthly figures are for mid-month. Quarterly and annual figures are averages of Aonthly f i g u r e s . h / Monthly f i g u r e s are end-of-month. Quarterly and annual f i g u r e s are averages of t h e monthly f i g u r e s . £ / Weighted average of y i e l d s t o maturity of 12 Government and Federal Railway bonds with m a t u r i t i e s of a t l e a s t 5 y e a r s . 6 / Rate f o r new mortgages on houses and i n d u s t r i a l b u i l d i n g s . y As of December 1$. 6 / Average of f i r s t t h r e e weeks. Sources: c a l l money r a t e and g o v ' t bond y i e l d from I . M . F . , I n t e r n a t i o n a l F i n a n c i a l S t a t i s t i c s ; other d a t a from Monthly Reports of t h e Swiss National Bank. -3UTable 2 . New money r a i s e d on Swiss c a p i t a l market through bond and share i s s u e s ( i n m i l l i o n s of Swiss f r a n c s ) New Issues BONDS Swiss Swiss| Foreign 1 T o t a l shares Retirement Total securities^/ Bonds I Shares | T o t a l Net Money Total new i s s u e s ( p u b l i c l y and p r i v a t e l y subscribed) . 1957 1958 1527 1190 5 11*0 1532 1330 518 565 2050 1895 • - - ° 1959 1 s t quar„ 2d " 3rd « l*th « 999 "225 281 189 303 1*81* 21? 55 139 75 11*83 1 0 U 3 UU1 "15IT 269 336 328 319' 291 378 2526 -S55 605 617 669 0 0 » • I960 1 s t quar« 2d » 3rd » 397 231 151 m 135 75 361* 225 "203 230 221 "709 591* 1*1*6 0 0 0 1957 1958 1118 827 5 137 1153 96k 186 111* 1339 1077 203 61*5 12 9 215 65U 112U 1*23 1959 1 s t quar. 2d 3rd l*th 686 "12? 163 119 179 U79 21? 55 135 75 1165 UHo 218 251* 251* 1*03 32 90 229 52 1568 1*72 308 1*83 305 137 163 12h 2 8 27 1 1 11 11 125 13 19 11:05 " W 183 1*70 286 I960 1 s t quar 6 2d 3rd 377 181 89 m 135 75 T9F 316 161* 13 90 l*o " W U06 205 "75 172 0 ~0 3 2 "75 175 2 1*63 231 203 0 Publicly-subscribed new i s s u e s Notes . — D e t a i l s may not add t o t o t a l s , due t o rounding 0 1 / Swiss bonds and Swiss shares„ Sources: La S i t u a t i o n Economique (November I960 supplement of La Vie Economique), p e 5* and Monthly Reports of the Swiss National Bank, -35- Table 3 . Subscription period Foreign bonds p u b l i c l y issued i n Switzerland i n I960 Borrower Amount ( S F m i l l i o n s ) Total Conversion Rate of interest Issued at Yield Mattxrity jTan. 29-Feb.5 I.B.R.D. 60 — k 1/2 100 U.50 1972 > b . 23-29 Belgium 50 50 k 1/2 98 U.7U 1972 Australia 60 — k 1/2 99 U.60 1975 B r i t i s h Petroleum Co., Ltd. 60 k 1/2 100 U.5o 1975 ^ a r . 16-23 Dr. 25-29 1 19-21 1 J ; 21^-29 1 ; 3- 15-22 1 : - p t . 23-29 I n t e r n a t i o n a l Standard E l e c t r i c Corp., N.Y. 50 15 4 1/2 100 U.5o 1970-78 Saskatchewan Province UO — 4 1/2 100 U.5o 1975 Badenwerk S k t i e n g e s e l l schaft 50 3U.9 h 1/2 60 I.B.R.D. apt. 29-0ct.U Cal-Tex w. 7-12 City of Quebec & U.501Z 1966-77 U.621/ — h 100 60 — hl/h 100 U.25 1975 20 — U 1/2 100 U.50 1972-78 U.oo 1975 B r i t i s h Aluminum Co., Ltd. 50 — U 1/2 100 u.50 1965-75 ?Nov. 8-lit Norway 50 — h 1/2 100 u.50 1975 Nov. 29-Dec.5 Denmark 50 —— k 1/2 100 U.50 1975 let. 19-25 1 / For the conversion. y For t h e cash s u b s c r i p t i o n s . Source: Swiss National Bank, Monthly Report ( B u l l e t i n nensuel) f o r December I960. . . UNITED , WEEKLY SPOT AND FORWARD STERLING Y MONTHLY CHANGE TRADE ON KINGDOM RATES SPOT OFFICIAL FOI t E l G N EXCHANGE L fii n h « of t MHIIom of X RESERVES ACTUAL CHANGE »d. Ii n Million) BALANCE 6JUSTED CHANCE . iMdol n / I - 1 I n H i i » - i > i t l r l i L i r . i i 11 — 1959 1940 11*1 . . )'