Full text of H.16 Capital Market Developments : March 7, 1960

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Not for Publication DECONTROLLED AFTER SIX MONTHS
H.U

March 7, I960.
CAPITAL MARKET DEVELOPMENTS
IN THE UNITED STATES AND CANADA
(Including Monthly Review of Financial
Developments in the United Kingdom)
Part I - United States

The volume of new public security financing was small last
week, but is expected to be much larger this week. During the week
ending March h, corporations sold large issues totaling $35 million
and State and local governments sold issues with aggregate proceeds
of $37 million. A Canadian issue for $1*1 million was also sold. Two
other State and local government issues had been scheduled for sale
last week; bids were rejected, however, for a $15 million Newark, New
Jersey, bond issue and a $50 million offering hy New York State Thruway
Authority was postponed indefinitely because of market conditions.
Largely reflecting these postponements, the estimated volume of State
and local government bond sales during March has been revised downward
to $525 million.
This week, large corporate issues, including a $100 million
General Motors Acceptance Corporation offering,- are expected to total
$135 million. State and local government issues, amounting to $152
million are also scheduled for sale. This total includes a $100 million
State of California issue which is expected to be sold on Wednesday.
Bond yields - Yields on outstanding corporate bonds declined
throughout February and at the end of the month yields on high-grade
corporates were 6 basis points lower than at the close of January.
Yields on seasoned State and local and U. S. Government obligations also
declined until late in February when they increased slightly. On balance,
yields on U. S. Governments declined 7 basis points in February and
yields on high-grade State and local governments declined 8 basis points.
Last week, yields increased slightly for State and local
government and high-grade corporate bonds, while those on lower grade
corporate and U. S. Government bonds remained stable.
Mortgage recordings - Mortgage recordings in December were
somewhat below the record year-end level of a year earlier. Conventional
loans accounted for about the same proportion (72 per cent) of the total
as in recent months.
For the entire year of 1959* mortgage recordings amounted to
a record $32.2 billion, one-sixth above 1958 and one-eighth above the
previous high in 1955. Although 3 per cent fewer mortgages were recorded
in 1959 than in 1955, the total dollar amount recorded was 13 per cent

fl.lfc
higher in 1959, reflecting the fact that the average size of loan
recorded ($8,522) was 17 per cent larger. Last year, Feaerally"underwritten mortgages represented 27 per cent of total recordings,
compared with 36 per cent in # 5 5 .
Stock prices - Stock prices on balance increased slightly
during February with the decline in the first half of the month being
more than offset by the increase in later weeks. Standard and Poor's
index of 500 common stocks closed on February 29 at 56.12—.51 points
above the end of January level.
Prices declined sharply last week, however, closing at 5k.57
on March h. Prices are currently at the lowest level since February
1959 and are 9 per cent lower than at the close of 1959. The volume
of trading last week averaged 3.2 million shares a day, the same as a
week earlier.
More detailed information concerning recent capital market
developments is presented in the attached exhibits.
Developments in the Canadian and United Kingdom 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.

HIGH-GRADE

BOND

YIELDS

/J v'V
^

V 7,r T
VT
LOWER-GRADE

BOND

AY"'""J

ux/ V LV

...
^Kon

YIELDS

- 5 Exhibit B - Tables for Exhibit A

ii. ia

High-grade Bond Yields
U. S. Govt,
long-term 2/

Corporate
Aaa 1/

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

State and
local govt.
Aaa y

(Per cent)
195U
1957
1958
1959

Low
High
Low
High
Low
i960 - high
Low

2.85 (ii/23)
It.lit (9/27)
3.55 (5/2)
it. 61 (12/31)
lt.09 (1/9)
It. 61 (1/29)
It. 5b (2/26)

2.1t5 (8/6)
3.76 (10/18)
3.07 (it/25)
It. 37 (12/31)
3.83 (1/2)
U.U2 (1/8)
It. 16 (2/19)

3.06 (3/26)
3.53 (1/7),
3.38 (2/18)

.30
.60
.22
.50
16
.38
.19

Feb.
Feb.
Feb.
Feb.
Har.

5
12
19
26
ii d/

It. 60
it.57
it.5it

it. 29
It. 20
it. 16
22
it.22

3.it3
3.38
3.38
3.39
3.it0

.31
.37
.38
.32
.33

k.Sk

U .55

1.90 (9/2)
3.U5 (8/29)

.92
.53
.89
.78

.86
.82

.78
.83

.82

Lower-grade Bond Yields

Date

Corporate
Baa 1/

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

State and
local govt.
Baa y
(Per cent)

•• Low
- High
- Low
- High
Low
1960 - High
Low

3.^
5.10
lt.51
5.32
lt.83
5.36
5.31

Feb. 5
I-eb. 12
Feb. 19
Feb. 26
Har. it •/

5.36
5.36

195it
1957
1958
1959

(12/31)
(12/29)
(7/11)
(12/31)
(V17)
(2/12)
(3/lt)

illE
2.93 (8/5)

3.92 (3/26)
it.it6 (1/7)
It. 31 (2/18)
it.itO
it.35
it. 31
it. 32
it.35

• 52
1.27
.77

.79
.71
.76
.77
.76

.96
1.21
.93
.98
.79
.97
.93
.97
.97
.93
.93
.95

bZ Preliminary.
1/ Weekly average of dally figures. Average tare of bonds Included is 25-26 years.
2/ Weekly average of divlly figures. The series Includes bonds due or callable In 10 years or more.
3/ Thursday figures. Only general obligation bonds are Included; average term Is 20 years.
Note.—Highs and lows are for Individual series and may bs on different dates for different series.

STOCK

MARKET

MORTGAGE RECORDINGS AND LOANS

Exhibit D - Tables for KxtiibiL C
Stock Market

Date

Stock price
index 1/

Common
stock
yields 2/
(per cent)

Trading
volume %/
(millions
of shares)

I960 -

1957-1959 - high
Low
High
Low

60.51
39.78
59.50
5L57

3.07
L66
3.18
3.1*7

U.3
1.1*
3-6
2.7

JanuaryFebruary
Feb. 19
Feb. 26
Mar. Ij. g/

58.03
55.6?
56.2U
56.16
54.57

3.28
3.38
3.37
3.37
3.1*7

3.2
3.0
3.5
3.2
3.2

Stock market customer credit
Customers1
Bank
debit bal- loans to
ances h/ "others" 5/
(Millions of dollars)

Total

1*,761*
• 3,51.1*
n.a.

3,1*01
2,1*82
n.a.
n.a.

1*,365
n.a.
n.a.
n.a.
n.a.

3,198
n.a.
n.a.
n.a.
n.a.

1,373

1,060

1,167
1,1#
1,11*5
1,11*5
n.a.

n.a.—Not available.
g/ Preliminary.
1/ Standard and Poor's Tmposlte Index of 500 oontnon stocks, weekly closing prices, 1941-43=10. Monthly data
are averages of daily figures rather than of Fridays' only. Highs and lows are for Fridays' data only.
2/ Standard and Poor's composite stock yield based on Wednesday data converted to weekly closing prices by
Federal Reserve. Yields shown are for da tea on which price index reached its high or low.
3/ Averages of daily trading volune on the New York Stock Btoluxnge.
4/ Bad of month figures for member firms of the New York Stook Exchargewhich carry margin accounts| excludes
balances secured by U. S. Government obligations.
5/ Wednesday figures for weekly reporting member banks. Be eludes loans for purchasing or carrying U, S.
Government securities* Prior to July 1, 1959, suoh loans are excluded only at banks in New York and Chicago.
Weekly reporting banks account for about 70 par cent of loans- to others. For further detail see Bulletin.

Nonfarm Mortgage Recordings and Loans 1/
Date

1958 - Bee.
1959 - Jan.
Feb.
Mar.
Apr.
May
July
Aug.
Sept.
Oct.
Nov,
Dec.

Unadjusted
Total
Seasonally
Unadjusted
-VA.
FHA
adjusted 2/
(Millions oi > dollars)
2,62?
2,677
2,631
2,68&
2,683
2,757
2,780
2,787
2,769
2,650
2/39
2,589
n.a.

2,629
2,352
2,21*5
2,586
2,776
2,768
2,971*
3,100
2,871
2,831* 2,799
2,1*1*2
2,1*87

510
585
506
530
1*90
1*78
521
521*
501*
510
523
1*1*8
1*51

257
276
238
260
231
211
221
227
202
221
238
220
21*1

Conv.

1,861
1,1|91
1,500
1,796
2,055
2,079
2,233
2,32,9
2,165 2,103
2,039
1,775
' l,79lt

n.a.—Not available.
1/ Total recordings data are estimates based on reports from about 450 areas and include
mortgagee of $20,000 or lees secured by nonfarm real estate, primarily residential properties,
FHA-laeured loans represent gross amount of Insurance written, and VA-guaranteed loans the gross amount
of loans closed,on 1-4 family houses. Conventional data are derived as a residual, although total
recordings and VA and FHA loans w e not strictly comparable in concept or timing.
%f Three-month moving average, seasonally adjusted by Federal Reserve.
Sourcei Federal Home Loan Bank Board, Federal Housing Administration and Veterans Administration,

-8-

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

I960
January
February
March

e/700
e/600
e/700

New capital
Corporate 1/
State and local 2/
I960
1
1959
1
195B
1
1959
1
1958
840
745
631

728

e/700

Jlly m ,

638
858
646

812

April
May
June

8 99
791
874

1,140
597
887

1,006

798
895
551

July
August
September

531
718
70 9

1,107
540
1,114

12
468

806
403
651

October
November
December

887
862
936

862
518
920

593
513
e/444

456
474
435

2,216
2,564
1,9#
2,688

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

2,142
2,531
1,549
2/1,550

2,276
2,244
1,860
1,365

it,780
.6,738
9,427

5,762
8,522
10,823

4,6?j
6,2%
E/7,773

4,520
6,380
7,746

1st
2nd
3rd
4th

quarter
quarter
quarter
quarter

e/2,000

1st half
Three quarters
Year

e/1,775

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

quarter
quarter
quarter
quarter

e/l,600

Year

2,011
2,409
1,695
e/2,538

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

e/8,65it

10,429

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

Exliibit F

H.lb

Other Security Offerings 1/
(In millions of dollars)
Long-tern
Federal agency 3/
Foreign government 2/
I960
I 1959
1 1958
I960
1 1959
1
January
February
March

77
59
2

April
May
JulyAugust
September

85
1
36

October
November
.December

558

199

139
198
120

—

April
May
June
July
Aufust
SeptemberOctober
November
December
Year

190
li28
295
•

161

220

58
12

992

707

233

371
208
UUi*

26k

I186
675
289

209
161
329

727

ti37
206
330

2li5
21x6
167
399

289
li23
369

8 1
306

it,127

Federal agency 3/
359
500
>89

h60

3,910

179

2,321

273

523

98
150

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

1,163
251

175

9
5
17

11
70

Year

196
53

1956

81
S

kSh
Ilk

288

137

6,017

3,098

2/ PrcllBinaiy
1/ Data presented in this exhibit differ from those in Exhibit E in that refunding Issues, to well as new
capital issues, are Included. Long-term.securities are defined as those B&turing in mare than one year.
2/ Includes securities off-ired in the United States
foreign governments and thalr subdivisions and by
Ir/.arr-itlonal organizations. Source* Securities and Exchange Commission.
3/ Issues not guarantied by the U. S. Goverzner.t. Sourcei long-tero, Securities and Ebtohange Cocaiaslon;
short-term, Federal Reserve.
4/ Principally tax and bond anticipation not»s, warrants or certificates acd Public Housing Authority
r.ot»s. In sone Instances PHA rotes included may have a somewhat longer tuna than one year. Sourcei Bond Buyer.

-10-

Exhibit G
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

~3b0

1959 - FebruaryMarch .
April
May

551
369
563
258
635
" 191
263
21U

215
359

3h2

284
110
363
199
ll00
i|21
230
279
262

July
August
September
October
November
December
I960 - January
February

Other 1/

35
176
20
50
60
50
98
175
20

29h

163
217
388
283

70
100
320

Large Individual Issues Offered March 1 through h

Issuer

Type y

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

Rating

CORPORATE
States Steamship Co.
Imperial Investment Co.,
Ltd.

Ins. bds.

20.2

1981

Coll.tr.bds.

15.0

1980

Rev.-S.T.
Kev.-Ut.

18.0
19.2

1961-85
1999/63

S.F. deb.
Instal. deb

-3U.5
6.9

1965-90
1961-80

. 5
6-1/2

5.00

Aaa

6.50

STATE AND LOCAL GOVERNMENT
Grand Rapids Expressway,
Mich.
Bade Co. Port Authority

1.12

h.73

3.00-!.. 15
h.67

OTHER
Metropolitan Toronto,Can.

5-5-1/8 5.00-5.15
L.75-5.15

H.IU

G-2

—11—

Footnotes

\/ Includes corporate and other security offerings of $15 million and over;
State and local government security offerings of $10 million and over.
2/ Includes foreign government and International Bank for Reconstruction and
Development issues and non-guaranteed issues by Federal agencies.
3/ In the case of State and local government securities, G. 0. 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 f rom specific taxes only; Rev.-Rent.,
revenue bonds secured solely by lease*payments.

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

Feb. 27
Mar. 3 1 —
Apr. 30
May 29
June 30
July 31
Aug. 31
Sept. 30
Oct. 30 .
Nov. 30
Dec. 31
Jan. 29
Feb. 29

Subsequent to
date shown

During month following
date shown
0ther

Corporate ^
198
396
246
287
165
238
198
374
385
226
210
207
301

2 92
550
254
247
146
356
385
270
115
295
445
210
255

Corporate
481
761
517
761
500
U06

279
476
31*6
332
272
305
517
694
509
271
280
252
372

20
50
50
25
70
30
45
35

Other 2/

h02

470 .
336
485
545
310
385

20
50
50
25
70
30
45
35

Forthcoming Large Offerings, as of March 4
Type

Amount
Approximate date
(millions
of offering
of dollars)

CORPORATE
Deb.
^General Motors Acceptance Corp.
1st mtg. bds.
General Telephone Co. of fla.
Sub. deb. 6 stk.
Mid-American Pipeline Co.
Deb.
Chesapeake & Potomac Telephone Co.
1st mtg. bds.
Northern Indiana Public Service Co.
Com. stk.
General Telphone & Electronics Corp
1st mtg. bds.
Louisiana Power & Light Co.
Gen. mtg. bds.
^Niagara Mohawk Power Co.
S.F. deb.
Coastal States Gas Producing Co.
S.F. deb.
^-National Fuel Gas Co.
1st mtg. bds.
-"-Puget Sound Power & Light Co.
1st mtg. bds.
^Metropolitan Edison Co.
S.F. deb.
-::-United States Plywood Corp.
Deb., bds. & com.
Commerce Oil Refining Corp.
Pfd. stk.
Kratter Corp.

100.0
15.0
20.5
25.0
15.0
5o.o
20.0
5o.o
20.0
18.0
20.0
15.0
25.0
45.0
26.0

Mar. 10
Mar. 11
Mar. 16
Mar. 16
Mar. 16
Mar. 16
Mar. 30
• Mar. 30
Mar.
Apr. 12
Apr. 21
Apr. 27
Apr.
Indefinite
Indefinite

STATE AMD LOCAL GOVERNMENT
State of Louisiana
Cook Co., Illinois
forState
FRASER
of Delaware

Digitized

G.O.
Rev.-S.T.
G.O.

15.0
25.0
12.4

Mar. 7
Mar. 8
Mar. 8

h.lk

H-2

-13-

Forthcoming Large Offerings, as of March U (Cont'd)
Issuer

Type

STATE AND LOCAL GOVERNMENT (Cont'd)
State of California
^Chicago Board of Education, 111.
Ventura Port Dist., Calif.
Triborough Bridge & Tunnel Auth.
Jacksonville, H a .

Amount
Approximate date
(millions
of offering
of dollars)
'

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

100.0
25.0
10.0
100.0
30.0

Mar. 9
Mar. 30
Mar.
April
May 10

OTIjER
None
#—Included in table for first time.
1/ Includes corporate and other issues of &15 million and over; State and
local government issues of i#10 million and over.
2/ Includes foreign government and International Bank for Reconstruction and
Development issues and non-guaranteed issues by Federal agencies.
Note. —Deletions for reasons other than sale of issue: Newark, New Jersey's
£L5.0 million issue—bid rejected and Hew York State Thruway's $50.0 million issueoffering indefinitely postponed.

-14-

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

Date

1952 - 1958
High
Low
1959 - January
February
March
April
May
June
July 9
10
15
30
Aug. 5
20
Sept. 18
Oct. 22
23
28
29
30
Nov. 25
Dec. 8
9
10
1960 - Jan. 7
Feb. 25
*26

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)

5.00 (9/14/57)
2.93 (3/31/510

87
-3

iik

'l
g

4.97
*4.95

37
29

4.93

it. 85
it. 80

24
22 ,

5.25,/
h.90
5.15

46
16
Uo

5.15
5.08
5.30

k2
63

5.08
5.10

5.50 (11/7/57)
3.00 (3/17/54)
*4.75^/
*4.67

123
-15
23
18

5:%]/
5.io

^
19

5.io
5.00

19
13

5.65

5.25
5.40

35
50

5.45
5.44 ,
5.302/

51
50
28

44
46

*—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 issues with such a provision. Other issues have no such provision.
3/ Includes one issue which provides for a 7-year period during which the
issue may not be called for refunding at a lower coupon rate.

March 7, I960

-15-

Part II - Canada
Canadian money rates continued to ease last week, although longterm bond yields had an upward tendency. The spread between U.S. and
Canadian yields widened through the entire range. The spreads in favor of
Canadian bills returned to the early February levels. Stock market prices
continued to fall in the Toronto and Montreal Exchanges.
Money market conditions. The Treasury bill yield declined slightly
from U.6l per cent to U.57 per cent at last Thursday's auction; 6-month
Canadian bills fell from U.86 per cent to U.8U per cent. The Bank of
Canada and the chartered banks increased their holdings of bills while the
holdings of the public declined. The rate on day-to-day loans were unchanged at U.25 per cent from the previous week.
The spread in favor of the Canadian 3-month bill widened compared
with the U.S. bill to .8? per cent as the U.S. bill rate fell more sharply
than the Canadian. There was an interest advantage of almost one-half per
cent in favor of Canadian bills after taking into account the discount on
3-months Canadian dollars.
Bond market developments. Canadian longer-term bond yields moved
upward in the last week while the shorter range maturities declined. On
Thursday the spreads between comparable Canadian and United States securities
were (figures in parenthesis refer to the preceding week):
0.87
0.70
0.85
1.19
1.25

per
per
per
per
per

cent
cent
cent
cent
cent

on
on
on
on
on

a 91-day bill (O.W*) March
a 182-day bill (0.56) March
an 8-year bond (0.71) March
a 20-year bond (1.06) March
a 25-year bond (1.22) March

3
3
2
2
2

Figures available from market sources indicate that in the first
two months of the year new corporate bond issues recovered sharply from
the low levels of the same period in 1959, although flotations are still
under the 1958 levels. Government bond issues of all kinds are below
year-earlier levels. A substantial part of the year-to-year decline in
governmental issues was in new issues placed on the New York market;
these fell from $76 million in the first two months of 1959 to $U6 million
in the first 2 months of I960. In the week to February 2k t,he chartered
banks further increased their government securities holdings while reducing
loans to local governments; general loans rose. The Bank of Canada reduced
its government bond holding^ slightly.
The stock markets. Canadian stock prices continued to decline under
the pressure of developments in New York. On Friday the Toronto stock index
was at U85.96 compared with U93«06 a week earlier and 512.90 a month ago.
The Montreal index was at 287.1 compared with 290.2 a week ago and 30k.5
a month ago.

—]_6?
Selected Government of Canada Security Yields
3-month
Date

Intermediate

Longterm
Govt,y
bondZZ

1957 - High
1958 - High
1959 - High
Low ,

Uo08
3.65
0.87
6.16
3.25

L.81
U«52
3.31
5.30
UoU5

it.35
UoU2
3.78
5-30
UoUl

0oh7

1.19

2.96
0.30

Feb. 11
18
25
Mare 3

L.75
1.62
U.61
1.57

5.U0
5.36
5ol*7
5.37

5.35
5.2L
5.31
5.36

1.12.
1.05
1.05
1.09

0.90
0.58
0,UU
0.87

•

Discount
on 3-mo.
Canadian
dollarS/

Spread between
Canadian & U.S. rates
long-term
3-mo*.
bondV
bills?/

0.U2
o.ia
0.36
0.30

Average yield at weekly tender on Ihursday.
Government of Canada 2-3A per cent of June 15, 1967-68.
Government of Canada 3-l/k per cent of 1979.
U/ U.S. Government 3-l/k per cent of 1978-83, Government of Canada 3-1/U per
cent of 1979.
SJ Spread between Canadian auction rate and composite market yield for the
U.S. bill on the close of business on Thursday.
6/ Spread between 3-months forward and spot price of the Canadian dollar,
expressed as per cent per annum, on Thursday.
Sales of new Canadian Government Municipal and Corporate Bonds
^ (in millions of Canadian dollars)
I960
to Feb. 29
Government
Provincial
Municipal
Corporation
Less short-term financing
(less than one year)

1959
to Mar. 2

1958
to Mar. 3

1,335.0
57.0
75.7
10W
1,591.8

1,355.0
llU.2
82.5
8.8
1,560.5

1,365.0
150.2
U8.1
170.1
1,733.U

935.0
656.8

1A35.0

1,065.0
668.1:

Of the above $ the following have been sold in New York
Provincial
Municipal
Corporation
Sources

A. E„ Ames & Co»s Limited.

15.0
20.6
10.0
U5.6

75.0

loh

70.0
13.5

March 7, I960
Appendix 1
MONEY AND CAPITAL MARKET DEVELOPMENTS IN UNITED KINGDOM
A major shakeout occurred in the gilt-edged market when the Bank
of England in February lowered the price at which it was prepared to purchase
certain key issues from the market. The move was designed to discourage
the banks from making any large further sales of government securities,
and hence discourage the continued rise in advances«, The move followed a
particularly sharp rise in bank lending in the month to mid-February» The
Treasury bill rate remained unchanged at the latest tender. Stock prices
weakened further in the last week.
Money market conditionso The Treasury bill remained virtually
unchanged at Uo55 per cent at the tender of March U, the same level it
reached following the rise in Bank rate on January 21* Because of the
rising U.S. bill rate through February 26 the interest advantage in favor of
British bills narrowed to one-quarter of one per cent on that date. On
March it,however, the sharp fall in the U.S. bill rate widened the advantage in
favor of London to almost one-half of one per cent after taking account of
the discount on three months forward sterling„
Gilt-edged market,, The action by the banks in reducing their
government bond holdings by £80 million in the month through mid-February
in order to finance a further sharp rise in loans led the monetary
authorities on Wednesday, February 2k to reduce the prices at which they
were willing to buy selected government bond issues. The banks had been
warned by the Governor of the Bank of England on two previous occasions to
limit their lending« This latest restrictive action by the authorities
caused a severe jolt to the gilt-edged market which has been accustomed to
Bank of England market operations to prevent abrupt price changes, although
the Bank did not resist pronounced market trends„ Most of the price decline
took place in the three days following the Bank's action; from Tuesday,
February 23 to Friday, February 26 the yield of a 6-year bond rose 22 basis
points and the yield of an indefinite bond rose 10 basis points. The yield
on a 6-year bond rose by another 11 basis points through March 3 and
the yield on an indefinite was unchanged* During February the yield changes
were less sharp as prices rose during the first three weeks» The rise in
the yields on selected maturities in February were (the figures in parenthesis refer to January):
Treasury bills
0 basis points (81)
6-year bond
7 basis points (10)
15-year bond
U basis points (12)
Undated bond
3 basis points (12)
An Australian £12 million 5-1/2 per cent bond issue 1977-80 was offered to
the public at 99 per cent and was fully subscribed* The issue was quoted
at one-quarter per cent premium the day after application lists were closed
on February 11»

-18-

Stock market.
caused equity prices to
from 32U on February 23
almost 7 per cent under
per cent on February 23

Appendix 1-2
The further restrictive action by the authorities
weaken. The industrial ordinary share index fell
to 317 on March 3, the lowest level this year and
the January 1 level. Share yields rose from 3.93
to U.05 per cent on March 3 (see. Table).

Small savings. Savings by small investors in nonmarketable issues
and in post office and savings banks are running well ahead of the record
1958-59 fiscal year. The sharpest increases took place in sales of defense
bonds and in pest office and trustee savings banks deposits (see Table).
Last week the Chancellor of the Exchequer raised from £3,000 to £5,000
the limit on the aggregate amount which anyone may deposit in the Post
Office Savings Bank and in the Ordinary Department of a trustee savings
bank. In the future there will be no limit on the amount which may be
deposited in a savings bank in any one year. The need for restrictions on
deposits has disappeared as deposit rates elsewhere compare favorably with
the traditional 2-1/2 per cent paid on Post Office savings and by the
trustee banks.

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

-19-

Appendix 1-3
Selected United Kingdom Security Yields

3-mo. Treas. bill yield
DifferU.K«i/ u.s.2/

Date
1959 - High
Low
Jan. 29
Feb. 5
12
19
26
Mar. k

3.6
3.0
U.5U
U.55

a.55
U.5U
U.55
U.55

U.7
2.6
3.99
3.80
3.85
U.08 U.19
3.6U

1.1

.a
.55

.65
.70
•U6.
.36
.91

Discount
on 3-mo.
sterling^/

London capital market yields
Govt. bonds
Share .
Un- .
yields^/
6 yr Jy dated^/

5.13
—
U.71
.03(premium) 5.05
.1U
5.03
.27
U.93
.23
U.90
.10
5.12
.23
5.23*

5.1U
U.66
5.15
5.13
5.15
5.12
5.25
5.25*

3.8a

3.92
3.91
3.99
3.99
a.05*

1/ Average yield at Friday weekly tender,
~
'
'
?/ Market yield in New York based on 360-day year.
3/ Spread between spot and forward rates expressed as per cent per annum.
%/ Exchequer $-1/2 per cent of 1966.
3/ Undated 2-1/2 per cent Consols.
%/ Financial Times ordinary share yield for the London market (1935 • 100).
* March 3 figures.

SiSSr#

(in millions of pounds)

National savings certificates
Defense bonds
Postoffice and trustee)
Savings banks
)
Premium savings bonds
Total

March 29, 1959
to
Jan. 30, I960

March 30, 1958
to
Jan. 31, 1959

+
9.0
+ 123.0
+18.2

+ U6.1
+ 85.1
- 70.0

38.h

+ 58.2

+ 188.5

+ 119.5

1/ Excludes accrued interest on existing savings.

UNITED
MONTHLY
BANK

BOND

RATE

AND

STOCK

TREASURY

BILL

KINGDOM
AVERAGES

RATE

YIELDS

2 Kz %

consols YIIID (lW.lt.il.)