Full text of H.16 Capital Market Developments : July 25, 1960

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Not for Publication
DECONTROLLED AFTER SIX MONTHS
-H.lii

Y.
7

July 25, I960.

}
1

CAPITAL MA'RKET DEVELOPMENTS
| IN THE UNITED STATES AND CANADA
|

Part I - United States

(Including Monthly Review of Financial Developments
in the United Kingdom)
Public security financing for new capital during the week
ending June 22 included a large corporate issue for $20 million and
large State and local government issues totaling $ # million. The
calendar for this week includes large corporate offerings with aggregate
proceeds of $113 million and an $11 million State and local government
bond issue.
Long-term bond yields - Yields declined last week for all
categories of seasoned bonds, except those for high-grade State and
local government bonds, which remained stable. Higfc-grade corporate
and U. S. Government bond yields reached new lows.for the year, while
yields on State and local government and lower grade corporate bonds
were about 4 basis points above their lows reached in early April,
Offering yields on new corporate issues also declined last
week. A new A-rated, first mortgage electric utility bond issue was
offered to investors last Wednesday to yield 1;. 80 per cent—8 basis
points lower than the yield on a comparable offering made a week earlier.
Short- and intermediate-term interest rates - Yields on Treasury
bills and intermediate-tera issues also declined last week with the
latter reaching a new i960 low. The rate for directly placed finance
company paper, 3 to 6 months, was lowered last week, while other major
money market rates remained stable.
Stock market credit - Total customer credit in the stock
market excluding borrowing on U. S. Government securities, increased
$82 million in June. This is the first increase since last November,
but the total had been nearly constant since March. Stock market
credit, totaling $li.2 billion at the end of June, was 5 per cent lower
than at the end of 19 S . Net debit balances increased $6l million in
June, while bank loans to other than brokers and dealers rose $21 million.
Borrowing by member films of the New York Stock Exchange maintaining margin accounts, excluding borrowing on U. S. Government securities declined very slightly in June to total $2.1 billion at the end
of the month. Customers' net free credit balances increased last month.
These and other data on stock market credit for June and May are iiown
in the following table.




End of month
June
1 May

Change

(Millions of dollars)
Customer credit
Excluding U. S. Government securities - total
Net debit balances
Bank loans to "others"
Net debit balances secured by U. S. Govt, securities
Bank loans to "others" for purchasing or carrying U. S.
Government securities
Broker and dealer credit
Money borrowed except on U. S. Government securities
On customer collateral
Money borrowed on U. S. Government securities
Customers' net free credit balances

a,132
3,021
1,111
130

+82
+6l
+21
-2i|

135

139

-il

2,110
1,831
162
1,017

2-115
1,820
1/208
%70

-5
+11
-1+6
+1*7

U,211t
3,082
" 1,132
106

r/ Revised.
Stock prices - Standard and Poor's index of 500 common stock
prices decreased 2 per cent again last week. Prices are currently back
to the levels of mid-May and only 2 per cent above the lows reached in
early March.
Housing starts - Private housing starts in farm and nonfarm
areas during June again held steacty at a seasonally adjusted annual rate
of l,33li,000 units, according to preliminary Census Bureau estimates.
This was one-sixth below the high in April of last year. Conventionallyfinanced units continued to account for over- seven-tenths of total starts,
a slightly higher proportion than a year earlier.
More detailed information concerning recent capital market
developments in presented in the attached exhibits.
Developments in the Canadian capital markets are presented in
Part II at the end of this report.

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

f

A/

LOWER-GRADE




/SrT

U.S. GOVERNMENT

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

H.lk

Date

Corporate
Aaa 1/

U. S. Govt,
long-term 2/

-5-

State and
local govt.
Aaa y

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

(Per cent)
Low
High
Low
High
Low
I960 - High
Low

S3 W

June
July
July
July
July

4.45
4.44
4.44
4.43
4.4o

1954
1957
1958
1959

-

24
1
8
15
22 2/

2.85 (V23)

li.6l (12/31)
4.40 (7/22)

2.45 (8/6)

i.90 (9/2)

3.81A ( 7 / 2 2 )

3.53 (1/7)
3.28 (V7)

.30
.60
.22
.50
.16
.56
.19

3.97
3.96
3.91
3.87
3.81*

3.30
3.30
3.30
3.32
3.32

.48
.48
.53
.56
.56

3.76 (10/18)
3,07 (4/25)
L 3 7 (12/31)

3.83 (1/2)
4.42 (1/8)

liE

3.06 (3/26)

•30
.47
.34
.92
-53
.92
.53
.67
.66
.61
.55
.53

Lower-grade

Date

Corporate
Baa 1/

State and
local govt.
Baa J/

Spread between
Aaaand Baa
State and
Corporate
local govt.

(Per cent)
195U
1957
1958
1959

Low
High
Low
High
Low
1960 - High
Low
June
July
July
July
July

-

24
1
8
15
22 2/

J

3.1* (12/31)
5.10 (11/29)
t.51 (7/11)

iS W

5.36 (2/12)
5.17 ( V 8 )

5.27

5.28
5.27

5.26

5.20

Prellalnary.

2.93 (8/5)

iUi

3.92 (3/26)
4.46 (1/7)
L22(l*/7)
4.21*
4.2U
4.24
4.27

4.26

.52
1.27
.77
.77
.56
.84
.71

.96
1.21
.93
.98
.79
.97
.92

.82
.84
.83
.83
.80

.94
.94
.94
.95
.94

Meekly average ef dally figures. Average term of bonds Included la 26-26 years.
%/ Weekly average ef dully figures. The series Includes bends due et» callable In 10 years or mare.
3/ Thursday figures. Only general ebllgatlen bonds are Included; average tern Is 20 years.
Mete.—Highs and lews are fop Individual series and mey be en different dates fer different series.




SHORT-

AND

INTERMEDIATE-

TERM

INTEREST

RATES

GOVERNMENT

lt.Vl

PRIVATE




H O C * EXCHANGE

Exhibit D - tables for Exhibit C

-7-

Shbrt- and Intermediate-term Interest Rates
Government
Date

Discount
rate 1/

Yields
6-month
bills 2/

3-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)

1.50

.61 (6/11)

1951*
1957
1958
1959

-

Low
High
Low
High
Low
1960 - High
Low

3.50
1.75
LOO
2.50
1.00
3.50

1.66 ( V 3 0 )
lt.Ol* (10/18)
3.61* (10/18) .58 (5/29) 3.02 (12/26) 2.11* (6/7)
L.57 (12/26) k.91 (12/31) 5.00 (12/21+)
2.63
' (2/20) 2.92
- - (1/2)
3.70 (1/2)
L59 (1/8) 5.07 (1/8) k.97 (1/8)
2.18 (7/11) 2.52 (6/17) 3.67 (7/22)

June
July
July
July
July

2l*
1
8
15
22 2/

3.50
3.50
3.50
3.50
3.50

2.27
2.ijl
2.31

2.39

2.18

2.76

ii.01
3.99
3.87
3.76
3.67

2.61*
2.85
2.87

2.62

•eem

.26
.79
.19
.58
.16
.37
.58
.1*6
.31

.66
.86
.01*
1.1*2
.1*0
1.81
.38
1.62
1.81
1.60
.89
1.36

Private

Date

Stock Exchange
call loan 1/

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

1951*
1957
1958
1959

-

Low High
Low
High
Low
I960 - High
Low

3.00
l*.5o
3.50
1*.75
3.75
5.50
5.oo

3.00
14-50
3.50
5.oo
Loo
5.oo
5.oo

1.25
3.88
1.13
1*.88
3.00
5.13
2.96

June
July
July
July
July

2k
1
8
15
22 2/

5.oo
5.00
5.00
5.oo
5.oo

5.oo
5.oo
5.oo
5.oo
5.oo

3.00
3.00
3.00
3.00
2.96

(12/31)
(11/16)
(8/8)
(12/31)
(k/6)
(1/22)
(7/22)

0 (12/18)
.59 (7/19)
-.35 (8/29)
.86(10/9)
.13 (12/1*)
1.02 (3/25)
.22 (1/15)
.61
.82
.73
.59
.65

Weekly rate shown la that 1b effect at end of period. Discount rate Is for Federal Reserve Bank of Hew York.
Stock exchange call loan rate Is going rate on call loans secured try customers' stock exchange collateral at
New York City banks. Prime rate Is that charged by large banks on short-term loans to business borrowers of
the highest credit standi;*.
Market yield; weekly averages computed from dally cleslng bid prices. Serlss of 3-5 year issues oonsieta of
selected notes and bonds.
Average of dally rates published ty finance companies for directly placed paper for w r y i a g maturities In the
90-179 day range.
Mote.—Highs and lows are for individual series and may be on different dates for different series. For spreads,
nigh refers to widest, and low to narrowest.




STOCK

MARKET

A/V

PRIVATE

HOUSING

STARTS




/ NEwl

Exhibit F - Tables for Exhibit E
Stock Market

I960 - High
Low

Trading
Stock market customer credit
Common
Customers1
Bank
stock
volume 2/
yields 2/ (millions
Total debit bal- loans to
(per cent) of shares)
ances 4/ "others" 5/
(Mi]Llions of dollars)
3,401
60.51 (7/31/59)
3.07
4,7 64
1,373 '
4.3
1,060
2,482
39.78 (12/27/57) 4.66
1.4 •
3,55k
1,167
59.50 (1/8)
3.18
4,365 • 3,198
3.9
1,111
54. 2h (3/11)
3,021
2.4
4,132
3.51

May
June
July 8
July 15
July 22 jd/

55.22
57.26
57.38
56.05
51.72

Date

1957-1959 - High
Low

1/
2/
3/
4/
5/

Stock price
index 1/

3.42
3.35
3.36
3.U6
3.55

3.3
3.5
3.0
2.6
2.5

4,132
4,214
n.a.
n.a.
n.a.

3,021
3,082
n.a.
n.a. =
n.a.

1,111
1,132
1,134
1,148
n.a.

n.a.—Not available.
g/ 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 Fridays' only. Highs and Iowa are for Fridays' 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 its high or low.
Averages of daily trading voluae on the New York Stock Exchange.
tod of month figures for member firms of the New York Stock Btchange which cariy margin accounts; excludes
balances secured by U. S. Government obligations.
Wednesday figures for weekly reporting member banks. Occludes 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 per cent of loans to others. For further detail see Bullet! n.

Private Housing. Starts 1/
Unadjusted
Seasonally adjusted
Conventional
Total
annual rate
Date
Total
Nonfarm
VA
Total
FHA
Nonfarm
Total
Nonfarm
old series new series
old series new series old series new series
(Thousand of units)
102
11
85
148
131
1,368 1,577
1959 - June
35
106
11
85
July
127
148
32
1,375 1,578
10
84
Aug.
125
138
31
97
1,340 1,160
10
Sept.
117
136
30
97
77
1,323 1,509
66
84
120
102
1,180 1,378
27
Oct.
9
62
76
8
20
105
Nov.
1,210 1,356
91
6
20
69
Dec.
83
"
57
96
1,330 1,1.51
16
67
1,216 1,366
55
87
i960 - Jan.
4
75
88
18
65
Feb.
52
1,115 1,367
5
74
68
22
63
Mar.
1,125 1,112
90
5
95
91
76
109
123
25
Apr.
1,135 1,325
7
128
25
95
1,336
7
May 2/
26
8
91
125 1,33b
June 2/
Total starts are Census estimates, which are not strictly comparable with old nonfarm series developed by BLS.
dwelling unit Is started when excavation begins; all units in an apartment structure are considered started at that
time. FHA and VA starts are units started under commitments by these agencies to insure or guarantee the mortgages.
As reported by FHA and VA, a unit is started when a field office receives the first compliance inspection report, •
which is made before footings are poured in some cases but normally after the foundations have been completed.
Capehart military housing units are excluded. Conventional starts are derived as a residual, although total and
and VA starts are not strictly comparable in concept or timing; they Include both units financed by conventional
mortgages and units without mortgages.




Exhibit G
Long-term Corporate and State and Local Government
Security Offerings and Placements
(In millions of dollars)
New capital
I960
January
February
March
April
May
July
August
September

quarter
quarter
quarter
quarter

1st half
Three quarters
Year

1958

I960
736

577
712
860

821
738
61+6

728

2/789
1/570
e/1,100

89k
785
887

1,140
597
887

e/675

535
740
703

1,107
540
1,11k

879
864
900

862
518
920

2,20k
2,567

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

1,93)4
e/2,21k

5,762
8,522
10,823

e/li,lli8

October
November
December
1st
2nd
3rd
4th

Corporate 1/
1
1 1959

2,151
e/4,459

e/h, 610

a

4,771
6,750
9,392

State and local 2/
1
1958
1
1959

$
s//»
a/95o
s/S50

639
858
6I16

812
953
511

932
593
1,006

798
895
551

s
1
tiS

806
403
651

2,lk3

1,571

•

4,674
6,222
7,793

456
47k
435
2,244
1,860
1,365
4,520

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

quarter
quarter
quarter
quarter

1,722
e/2,159

Year

1,999
2,1*12
1,716
2,503
8,630

e/
1/
2/
3/
h/

is
2,731
2,213

10,429

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




-11-

H.U

Exidbit H
Other Security Offerings 1/
(In millions of dollars)
Long-te TO
Foreign government 2/
Federal agency ;1/
I960
I960
I 1959
1959
1 1958
1958
1

JanuaryFebruary
March

*
175
70

81
60
2

196
53

April
May
June

33
31

• 58
50
1*2

139
198
120

July
August
September

85
1
35,

9
5
17

October
November
December

33
30
70

58
123
7k

66

5U7

992

707

Year

182
150
150

—

—

—

—

16U
98
150

—

220
—

2,321

Federal apency 3/

190
1*28
295

233
1*60
273

k7 9
1*63
512

359
500
189

371
208
ihk

563
111
215

357
351*
26k

509
632
1*35

I486
675
289

209
161
329

July
August
September

2U6
1*6?
399

289
1*23
369

727
365
665

1*37
206
330

October
November
December

235
3h3
358

231
1*15
213

733
1*71
288

kSk
Ilk
137

1*,17 9

3,910

6,01*7

3,098

April
May
June

268
31*5
365

1,163
251
. 523

1U8
351*

Short-term
State and local government k/
January
February
March

199
175

"

??

2/267

Year
E/ Preltaiwry.

1/ Data presented In this exhibit differ from thoae 1A Exhibit E In that refunding lsrons, an well as new
capital issues, are .Included. Long-term securities ai*e defined as those natuKng In more than one year.
2/ Inoludoi securities offered In the United States by foreign governments and their rubdlvisions end by
in'.ernntlonnl organisations. "ouree: Securities and Exuhr.nge CoiamlMslor..
3/ Issues not guarantied by the U. S. Govirnnenl. Source: lons-tern, Securities and Ebtohangt Cor.nl salon)
short-term, Federal Reserve,
4/ Principally tax and bond anticipation notas, warrants or certificates ar.A Public Housing Authority
not**. In some instances I'HA rotes Included may have a somewhat longer tens th%n one year. Souredt Bond Buyer.




.

-12-

Exhibit I
Large Long-term Public Security Issues for New Capital
(Other than U. S. Treasury) 1/
Proceeds of Large Issues Offered
(Millions of dollars)

Corporate

Month

State and
local government

28k
110
363
199
ilOO
1*21
230
279
262
381*
309
139
W

1959 - June
July
August
September
October
November
December
i960 - January
February
March
April
May
June

635
19U
263

21k

29 U
163
217
388
283
225
370
23U
561

Other 2/

60
50
98
175
20
70
100
320
191
71
28
30

Large Individual Issues Offered July 1 through 22

Issuer

Type J/

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

Rating

CORPORATE
Illinois Bell Telephone Ca
Commercial Credit Co.
Northern Illinois Gas Co
American Can Co.
State Loan & Finance Co.

1st mtg, bds.
Sr. notes
1st mtg. bds.
Deb.
S. F. deb.

50.0
50.0
30.0
iiO.O
20.0

1997
1979
1985
•1990
1980

lt-7/8
k-3/h
L-5/8
k-3/k
5. ho

1.75
1.83
L60
4.70
S.ho

Aaa
—

Aa
——

STATE AND LOCAL GOVERNMENT
Salt River Proj. Agric.
Imp. & Pwr. Dist., Ariz. Rev.-Ut.
State of North Carolina
G.O.
Dist. of Columbia Araioiy
Rev.-Ut.
Board 6/
G.O.
Chicago, Illinois
Santa Clara Co., Calif.
G.O.
Nassau Co., New York
G.O.
Carmen-Smith Hydro-Elec.
Proj., Oregon
Rev.-Ut.
Rev.-Ut.
Wash. Toll Bridge Auth.
OTHER

None



19.0
10.7

1963-92/69
1961-80

19.8
37.0
11.5
27.1

1979
1962-79
1967-85
1961-89

25.0
30.0

A
Aaa

3.92
3.01

2.90-L05M
2.90-3.1<&

U.19

it. 15
Aaa
2.1i0-3.657/ A
2.20-3.651/ Aa
2.20-1.00
A

3.60
3.53

3.86

1965-2001/71 3.93
2000/65
li.95

3.10-1.30
b.90

A

1-2

-13-

Footnotes
1/

Includes coiporate and other security offerings of $l£ million and over;
State and local government security offerings of $10 million and over.
Includes foreign government and International Bank for Reconstruction and
Development issues and non-guaranteed issues by Federal agencies.
2/ 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., revenue bonds secured solely by lease payments.
h/ 1992 maturities not reoffered.
1961-70 maturities not reoffered.
W
0/ Interest on these securities is not exempt from Federal income taxation.
7/ 1/k per cent bonds of 1985 not reoffered.
2/




-ill-

Exhibit J
Forthcoming Large Long-term Public Security Offerings for New Capital
(Other than U. S. Treasury) 1/
Expected Proceeds from Forthcoming Large Issues
Subsequent to
date shown

During month following
date shown

Date of
computation

Corporate

1959 - June 30
July 31
Aug. 31
Sept. 30
Oct. 30 .
Nov. 30
Dec. 31
1960 - Jan. 29
Feb. 29
Mar. 31
Apr. 29
May 31
June 30

1£S
238

1

226

210
207

301

299
202
1*83
237

Other
1 #

356
385
270
115
295
165
210
255
250
2l*3
277
180

Corporate

272

50

500
1*06
1*02
1:70
336
1*85
51*5

305
517

25

69I1

70
30
1*5
35

509
271
280

252

385
280
258
502
380

372
316

30
30

[other 2/

1

50
25

8
70

35
60
30

Forthcoming Large Offerings, as of July 22
Issuer

Type .

Amount
Approximate date
(millions
of offering
(of dollars)

CORPORATE
Southern Counties Gas Co.
Seaboard Finance Co.
International Harvester Credit Corp.
Southwestern Bell Telephone Co.
El Paso Natural Gas Co.

1st mtg. bds.
S.F. deb.
Deb.
Deb.
Com. stk.

Consumers Power Co.

Conv. deb.

Natural Gas Pipeline Cb. of Am.
Natural Gas Pipeline Co. of Am.
-"-Southern California Edison Co.
-^American Telephone & Telegraph Co.
Texas Eastern Transmission Corp.
Commerce Oil Refining Corp.
Trustors' Corp.
Liberian Iron Ore, Ltd.
STATE AND LOCAL GOVERNMENT
Houston, Texas
^State of Washington
*East Bay Municipal Util. Dist., Cal.
^Milwaukee, Wisconsin
Chesapeake Bay Bridge & Tunnel Comm.
OTHER
DigitizedNone
for FRASER



1st mtg. bds.
Pfd. stk.
1st ref. mtg. bds.
Deb. •
Deb.
Deb., bds. & com.
Partic. certif.
Bds. & stk.
G.O.
G.O.
0.0.

G.O.
Rev.-Ut.

25.0
15.0
60.0
250.0
25.0
I6.0
1*0.0
30.0

July 27
July 28
July 28
Aug. 3
Aug. 11
(rights expire)
Aug. 12
(rights expire)
Aug. 18
Aug. 18
Aug. 2h
Oct. 25
Indefinite
Indefinite
Indefinite
Indefinite

10.5
3U.0
30.0
10.8
200.0

July 27
Aug. 23
Aug. 2li
Sept. 20
Indefinite

23.0
1*0.0
50.0
100.0
30.0
38.1

J-2
Footnotes

-15-

*—Included in table for first time.
1/

Includes corporate and other issues of $15 million and over; State and
local government issues of &L0 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: None.




-16-

Exhibit H
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. 7
Feb. 25
26
Mar. 15

Aa-rated offering yields
A-rated offering yields
Amount above
Amount above
Actual
Actual
seasoned yields
seasoned yields
(per cent)
(per cent)
(basis points)
(basis points)
5.30 (12/8/59)
2.93 (3/31/5W
*lt.93
It. 83
5.132/
*5.08
*5.30

5.08
5.10

16

Apr.

18
29

6

8
Ut
21
27
May 10
12
25
June 17
28
29
July 8
13
20

87
-3
31
23

It

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

17

*5.65
5.33

lt3

63

itlt
lt6
32
17

It. 85

33

lt.9k

39

4.95
It. 88

39
32

5:%k

25
27

51
28

5.00

lt.93

11
7

lt.98

21

5.30

50

5.10

26
33

5.20
it.82
It. 8U

60

It.95
it. 9 3
lt.88

11

it.80

*—Single observation, not an average.
1/ Covers only 30-year first mortgage bonds, as reported in Moody'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
with such a provision. Other issues have no such provision.
Digitized issues
for FRASER



•17Part II - Canada
The emergence of a substantial discount on the forward Canadian dollar
accompanied a rise from 102 to 102.30 U.S. cents in the spot rate during the
week. Since early April the forward Canadian dollar has been at a premium.
As a result of the forward discount, the net incentive.to hold the Canadian
Treasury bill over the United States bill declined from 0.87 to 0.5& per cent
per annum. This sharp increase in the forward discount may at least in part
reflect foreign acquisition of Canadian Treasury bills during the week. Canadian
bond yields have shown some rise during the week, and industrial stock prices
continued to decline. Revised estimates for i960 capital expenditures, although
slightly below earlier estimates due largely to a drop in housing, continue at
high investment levels. The Government has recently announced plans to increase
assistance in mortgage financing and hiilding loans by an additional $175 million
this year.
Money market conditions0 The average yield on the 3-month Treasury
bill declined at last Thursday's auction by 5 basis points to 3„19 per cent from
3.2U per cent the previous month. The 6-month bill rate also declined to 3<>lil
per cent from 3 p e r cent the previous week. During the week the Bank of
Canada decreased its holdings of Treasury bills by $15 million, exactly offsetting the decrease in total Treasury bills outstanding. The general public
increased its holdings by $U million, and the chartered banks were net sellers
by an equivalent amount. The average closing rate on day-to-day loans during
the week was 3.35 per cent compared with 3.28 per cent a week ago.
There was little change in the spread favoring the Canadian over the
United States bill during the week, but the net incentive to hold the Canadian
bill declined from 0.87 per cent per annum to 0,55 per cent as a result of the
emergence of a discount on the 3-month forward dollar.
Bond market conditions, Bond yields rose last week in almost all
maturities. The spread between selected comparable Canadian and United States
securities (Thursday yields for bills and Wednesday yields for bonds) were as follows (figures in parentheses refer to the previous week)s
0.85
0.77
0*85
1,12
1.2U

per
per
per
per
per

cent
cent
cent
cent
cent

on
on
on
on
on

a 91-day bill (0,87)
a 182-day bill (0.77)
an 8-year bond (0.86)
a 20-year bond (1,0U)
a 35-year bond (1,23)

During the week the Canadian Government accounts purchased $12 million of bonds;
the Bank of Canada sold $5 million, the chartered banks $U million, and the
general public $U million.
The press has commented that the success of the Saskatchewan $9,1 million issue in Switzerland may start a new trend in Canadian borrowing,, The 15year U-l/2 per cent issue was offered at par and oversubscribed; it is now at
a premium of 1-1/2—2 points. The British Columbia Telephone Company 5 - 3 A




per cent 25-year bond will be offered in Canada this week at 99 to yield 5,82 per
cent0
Exchange rates. The spot rate on the Canadian dollar rose slightlylast week and closed at $1.0230 (U.S. dollars) on Thursday compared with $1.0230
the week before. The 3-month forward dollar was sold at a discount last week
for the first time since beginning April when it moved to a premium.
Stock exchanges. Industrial stock prices on the Canadian exchanges
declined early last week as noted in the following table?

I960 - High
Low .
July 12
13
1h
15
18
19

Toronto
532.9k
U81.31

Montreal
320.0
268.3

U8U.06
U8U.75
1*86.38
U88.06
U8Ue62
1+81.31

272.3
271.U
271.8
270.9
271,2
268.3

New York
Standard & Poor
65.02
57.00
59.70
59.52
59.5k
58.98
59.00

Consumer Creditt Total consumer credit balances outstanding at the
end of the first quarterwere $1,775 million, down seasonally from the end
year level, but 10 per cent above the level a year ago. (See table)„ Between
March 1959 and March I960, department store credit outstanding rqse substantially;
there was also a marked growth in consumer small loans. (See table)0
Mid-year review of investment expectations. The Canadian Government's
mid-year review of investment expectations in I960 shows only slight revisions
over the estimate made earlier in the year. Total investment is now expected
to be about $8.7 billion compared with $8.8 billion in the earlier estimate.
A. slight rise is noted in business capital (from $5,010 million to $5,082
million), reflecting increases in spending on mineral, transportation and power
development* Social capital, on the other hand, shows a decline from $8<,770
million to $8,712 million, reflecting sharp declines in housing. There will
be some increase in direct Government expenditures.
Original
Revised
(millions of Canadian dollars)
Business capital

5,010

Housing and social capital

3,760

Total capital spending

5,082

8,770

Canadian-Government assistance in housing. The Canadian Government
announced plans to increase residential construction where considerable unemployment has been in evidence (see Capital Market Developments July 18, I960).
The Government originally allocated $500 million for such financing in I960,
about half the amount actually spent in the previous year. The new program,




-19includes the following:
1.

An increase in the income ceiling for direct Government
loans by $2,000 (to $7,000 — $7,600 maximum depending
on family size);

2.

Building loans for construction if assurance is given that
the houses will be occupied immediately and not added to
the present stock of unsold houses.

The new measures which will involve an additional $175 million are expected
to increase housing starts by about 120,000 to 125,000,

British Commonwealth Section
Division of International Finance




Selected Canadian Money Market and Related Data

Jui-19 30
July 7
Ik

21

W4

11

3-mo. Treas. bills
Spread
Canada
U . s ^ / over U.S.
6.16
3.25
5.11
2.65

k,k9
2.80
L.63
2.19

3.07
3.17
3.2k
3.19

2.19
2.3k
2.37
2.3k

_2.96
~ 0.30
0.90

Canadian dollar
Spot
discount (-1
3-mo.
forward premium(+)<y

2/

-O069

105051
102.58
105,27
101.31

0.88
0.83
0.87
0.85

102.03
101,8k
102.03
102,30

-

102.05
101.86
102.03
101,22

Net incentive to
hold Can,
bill®/

Oo 9k

0.31
-0.72

-0.57

0.06
0.06
0.0
-0,31

0.9k
0.89
0.87
0,5k

a/ Average yield at weekly tender on Thursday.
5/ Composite market yield for the U.S. Treasury bill on Thursday close of business,
c/ In U.S. cents,
d/ Spread between spot rate and 3-month forward Canadian dollar on Thursday
closing, expressed as per cent per annum.
e/ Spread over U.S. Treasury bill (column 3)# plus 3-month forward discount or
premium (column 6),

II 1 I

Selected Government of Canada Security Yields

a/
W
biTl
c/
3/
e/
~y
/
_/

f

6-mo. Treas. bills
Spread
Canada
uTi/

Intermediate
bonds (8 yr.)
Spread
over
Canada
U.S.d/

6.2k
5.11
5,33
2,89

0.85
-0.69

5.37
k.50
5.55
k.k9

3,23
3.35
3,k5
3,kl

0.62
0.k2
0,77
0.77

k.50
k.5k
k.5k
k.55

1.11 .
0.21
o.k5
0.60
0.86
.0.85

Long-term bonds
(20 year)
(35 year)
Spread
Spread
Canada
Canada
u?sei/
uTi/
5.30
k,kk
5.k2
k,85
k.85
k.85
k.85
k.88

1.22
0.87

5.05
k.73
5,28
k.86

1,61
0.98

1,01
1.02
1.0k
1.12

k.9k
k.9k
k.90
. k,86

1.25
1,27
1.23
1.2k

Average yield at weekly tender on Thursday.
Spread between Canadian auction rate and conposite market yield of U.S.
on close of business Thursday.
Government of Canada 2-3/k per cent of June 1967-68•
Spread over U.S. Government 2-1/2 per cent of 1963-68.
Government of Canada 3-l/k per cent of October 1979.
Spread over U.S. Government 3-l/k per cent of 1978-83.
Government of Canada 3 - 3 A per cent of September 1996 - March 1998.
Spread over U.S. Government of 1995.




Canadai Changes in Distribution of Holdings of Canadian
Government Direct and Guaranteed Securities
(millions of Canadian dollars, par valueJ
Bank of Canada
tteas#
bills
Bonds
May 18
22
June 2
9
16
23
30
July 7
lit
21

Source:

- 15
0
- 5U
- 1
+ 20
- u
+ 5
+ 18
- 2
- 15

Government
Total

Chartered banks
Treas.
Bonds
bine.

- 8
- 3
- 2
- 9
- 12
- 17
0
+ 13
- 2
+ 13

+ U
- U
- U8
0
+ 13
+ 13
+ 5
+ U8
+ 12
- 5

+
+
+
+
+
-

+ 17
+ 1
+ 8
+ 5
+ 5
- 2
+ 11
- 27
+ 6
• U

7
Uo
32
9
Ill
5
U6
21
2U
u

General nubile
savings ireas.
Bond!
boode
bill*
:

-

2
6

+
+
+
+

6
39
k
9
52
1
Uo
h9
2k
k

+
+
+
-

15
5
73
3
11
U
17
25
15
U

Bank of Canada, Weekly Financial Statistics.

(millions of Canadian dollars;

End month
* 1958-Dec.
:1959-Mar.
Apr.
Dec.
ji960—Jan.
Feb.
Mar.
Apr.
; Source:

Finance
companies
728
7UU
759
806
781*
788
790
80U

Small loan co 1 s.
Cash
Instalment
loans
credit
19
26
28
38
39
Ul
UO
U2

382
385
390
UU6
UU6
UU7
U53
U63

Bank of* Canada Statistical Summary.




Department
stores

Other
retail
dealers

22U
205
20U
250
2U6
2U0
238
2U2

266
251
n.a.
27U
n.a.
n.a.
25U
n.a.

Total

1,6#

1,611
1,81k
n.a.
n.a.
1,775

-22-

July 18, i960
Appendix 1
United Kingdoms

Money and Capital Markets During June

Interest rates in London money and capital markets rose sharply
during June* To check domestic credit expansion and to strengthen
Britain's external position, the Bank of England on June 23 raised its
discount rate from
to 6 per cent and made a further call for Special
Deposits from the commercial banks0
Yields in the gilt-edged market rose throughout the month <> Bond
prices fell before June 23 in anticipation of further restrictive measures5
they fell further in reaction to the new restraints„ By the end of June,
intermediate bonds had breached the 6.00 per cent level and yields on
long-term bonds reached postwar record levels„ On June 2$s for example,
prices on Consols were lower than they have been since 1920 „ Treasury bill
and other money market rates also rose by more than one per cent in June»
These rate developments demonstrate the determination of the British
authorities to allow interest rates to act as a principal tool of economic
stabilization to keep the domestic business expansion under control0
A major inflow of short-term funds from abroad during the latter
part of the month, attracted by the rising level of British money rates
and the declining level of rates in the United States, transformed Britain's
external economic position in June, d*sf>ite' a widihing trade'gapo Excluding
special capital payments, Britain's official reserves increased by $59
million in June and the rate for the spot pound rose from $2e80lU in
mid-June to $2o8069 on July 1„ The inflow was stimulated by the unusually
wide spread in favor of the Treasury bill in London over the United States
billj in addition the discount on 3-month forward sterling did not widen
as rapidly as bill rates in London and New York diverged. On July 1,
there was a net incentive of 1»95 per cent in favor of the London Treasury
bill (with the exchange risk covered)a Under these circumstances, foreign
investors found London rates attractive and British resident banks found
it profitable to employ UoS„ dollar funds (including so-called Europeandollar deposits which London banks have received in some volume over the
last few years) in the London market on a covered basis„ During early July,
the incentive in favor of the London Treasury bill declined.
These favorable external developments, together with new evidence
that Britaincs domestic boom was responding to the restraint measuresi
contributed to a minor but general easing of yields in British financial
markets in early Julyc Conditions in the gilt-edged market had improved
sufficiently for the authorities to announce a new Treasury short bond
offering for cash on July 12 0
Outside financial markets, there was also a general rise in
interest rateso Commercial bank and hire-purchase deposit and lending
rates were automatically linked to bank rate*




-23Money market conditions. The 3-month Treasury bill rate rose
from U.56 per cent in early June to 5.68 per cent after the Bank rate
action (see Table)0 There was a corresponding rise in money market rates
for day-to-day money and for commercial bills*
With bill yields declining rapidly in the United States in June,
the spread in favor of the London bill widened from 1*91 per cent on June 3
to 3063 per cent on July 1 (see Table)* Because the forward discount on
3-months only partly offset the higher London yields, the net incentive
to hold United Kingdom bills increased from 0*79 per cent on May 27 to
1*95 per cent on July 1 (see Table). On JujLy 8, it had narrowed to 1*U3
per cent*
Gilt-edged market* Conditions in the gilt-edged market deteriorated in early June and yields rose appreciably in anticipation of further
measures of credit restraint* When the new restraints were announced, a
further shake-out in bond prices occurred. Between May 27 and July 1,
bond yields rose by between 30 and 1±0 basis points for most maturities,
as may be seen in the following selected Government security yields (in
per cent per annum):

Treasury bill
5-1/2 per cent bond 1966
3 per cent bond 1965-75
3-1/2 per cent War Loan
2-1/2 per cent Consols

1957
Nov.

I960
Jan. 1

I960
May 27

6.U6
n.a.
5.99
5.71
5.51

3.73
5.00
5.30
5.39
5.0U

5.62

U.56
5.39

5.62

5.36

I960
June 17
U.68
5.61
5o80
5.77
5.5U

I960
July 1

I960
July 8

5.68

5.66
5.80
5.95
5.85
5.61

5.93

6,00

5.86

5.68

The extent to which the British authorities have allowed interest rates to
rise this year is shown in the following increases in yields' between January 1
and July 1, 1960s
Treasury bills
6-year bond
15-year bond
War Loan
Consols

1,95 per
0.93 per
0.70 per
0.U7 per
O06I4 per

cent
cent
cent
cent
cent

per
per
per
per
per

annum
annum
annum
annum
annum

It is also significant that yields on July 1 exceeded the former postwar
peak of yields for intermediate- and long-term bonds which had been reached
in November 1957, as may be seen in the figures above*
During early July, there was a marked improvement in the bond
market and a minor but general easing in bond yields * In addition, the
authorities felt that the market could take a new Treasury issue * On
July 12, they announced an offering of £300 million of a 5-1/2 per cent
bond, 1962, priced at 99 for cash. The terms of the offering produced a
slight rise in yields in the short bond sector. The new issue will provide
the Bank of England with supplies to help control the short end of the
market* The Bank is expected to feed the new bonds out as market conditions
permit in exchange for the 2-1/2 per cent Funding issue of 1956-61 which




-2khas a final redemption, date in about nine months i the maturing issue
amounts to £796 million„
Bank rate and Special Deposits,, On June 23 the Bank of England
announced an^Cnc^asiTlLntKe Bank rate from 5 per cent to 6 per cent and
a doubling of the Special Deposits requirements established two months
ago (see Capital Market Developmentss May 16, I960)2 from 1 per cent to
2 per cent for the London clearing banks and from one=half to one per cent
for the Scottish banks0 The new measures were aimed at checking the rising
domestic demand evidenced by the growing shortage of labor and materials
as well as a worsening of the seasonally-adjusted trade balance in May0
The rise in the German Bank rate on June 2 and talk of a revaluation of
the D=mark as w s H as the approaching summer period of seasonal weakness
for the pound sterling influenced the British decisiono
Even before the rise in Bank rates there was evidence that
earlier measures of'.credit restraint had begun to be effective0 The midJune statement for the London clearing banks showed that the 2U°month
expansion in bank lending was terminating» Since mid-1958;, the banks
have increased their loans from 29 per cent to about U6 per cent of deposits
and reduced their holdings of Government securities from 33 per cent to
about 20 per cent ot deposits o Between mid-May and mid-June =, bank loans
increased by only £3 million. However, the banks reduced their securities
holdings by a further £29 million to meet their June 15 call to Special
Deposits of one per 6ent0 The banks will have to meet half their new
calls to Special Deposits on July 20 and half on August 17o
Instalment credit continued to grow in May but at a substantially
reduced rate = Total debt rose by £15 million in May compared with increases
of £29 million It. April and £32 million in May 1959o These restrictions
are checking credit purchases of automobiles and of consumer durable goods0
Automobile credit in May I960 was only h per cent above the May 1959 level
while it was 26 per cent higher in January-April I960 compared with the
same months in 1959o Furthermore5 total retail sales declined by one
per cent in May but sales of consumer datables fell by 6 per cento
General rlsgin interest rates outside financial markets„ The
rise in Bank rate automatically produced a general rise in the lending and
deposit rates of the clearing banks0 In additionp deposit rates of-ths
hire-purchase companies tend to follow Bank rate automatically0 The
personal loan rates of the clearing banks were raised from 5 to 6 per cent
and maximum hire-purchases charges were raised by 1=1/2 per cent nominal
(between 9 per cent on new cars and 12 per cent on old cars)„ The building
societies had raised their deposit and lending rates in May (see Capital
Market DevelopmentsD June 13s I960) and are not able to move further at
this time0 In the market for mortgages for lo&al authorities9 rates are
close to the 6 per cent levels two-to-five-year mortgages are quoted at
6-1/u to 6=1/2 per cento Some 20-year mortgages have been placed at 6 per cento
Stock priceso The stock market was unsettled during June* There
was a fall in stock prices from 328c6 on June 10 to 30803 on June 2h but
the index had recovered to 317*6 on July 8 (see Table) o By July 12 <, it had
fallen back to 312080




-25United Kingdom:

Date

3-mo. Treasury bill
DifferU.K.*/ U .S J y ence

1959 - High
Low
I960 - High
Low

3.6
3.0
5.68

U.7
2.6
U.59
2.05

June 3
10
17
2h
July 1
8

lu56
U.61
U.68

2.65
2.38
2.37
2.35
2.05
2.39

a/
b/
c/
3/
e/
7/

Treasury Bill Yields and Exchange Rates

3.75

5.68

5.68
5.66

Discount
on 3-roo. .
sterling^/

Net
incentive
to hold
.
U.K. b i U S /

Exchange rate
Discount
Spot
sterling
on 3-mo.
e/
sterling^/

-1.1

o.U

3.63
-0.8U

(P).6U
1.8U

1.91
2.23
2.31
3.33
3.63
3.27

.70
.79
1.0k
•1.71
1.68
1.8U

1.95
- .23

279.83
279.83

. 1.29
(P).U7

1.21
US
i.UU
1.62
1.95
1.U3

280.20
280.lit
280.18
280.57
280.69
280.86

.U9

-

.55

.73
1.20
1.18
1.29

Average yield at Friday weekly tender.
~
Closing market yield for Friday in New York.
Spread between spot and forward rate in per cent per annum.
Net of difference in bill yield less discount on 3-month sterling.
Spot rate in New York market in U.S. centsv^
Spread between spot and forward rates in U.S. cents.

United Kingdom:

Selected Capital Market Yields
Consols
d/

Share
yielclg/

Yield

Share .
pricesS'

6-year
bondS/

15-year
bond**/

War
loan®/

I960 - High
Low

5.93
U.93

6.00
5.33

5.85
5.53

5.69
5.03

U.U2
3.7U

1.36
0.76

333
297

June 3
10
17
2k
July 1
8

5.53
5.58
5.61
5.88
5.93
5.83

5.72
5.75
5.80
5.9U
6.00
5.95

5.69
5.71
5.79
5.83
5.82
5.85

5.U6
5.U9
5.60
5.69
5.67
5.61

U.23
U.15
U.29
U.U2
k.32
1.30

1.23
1.3U
1.31
1.27
1.35
1.31

319.7
328.6
317.7
308.3
315.2
317.6

a/ 5-1/2 per cent Exchequer.
"d/ 3 per cent Savings Bond 1965-75*
c/ 3-1/2 per cent War Loan (undated).
d/ 2-1/2 per cent Consol (undated).
e/ Financial Times.
7 / Difference between yield on 2-1/2 per cent Consols and share yield,
jg/ Financial Times.