Full text of H.16 Capital Market Developments : October 17, 1960
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Not for Publication DEC0NTH0LLED S H M0NTHg H.lU October 17, 1 9 # . / CAPITAL MARKET DEVELOPMENTS m THE UNITED STATES AND CANADA (Including Monthly Review of Sources and Uses of Funds of Financial Intermediaries) Part I - United States One large corporate security issue with proceeds of $20 million was sold last week. No large State and local government bond issues were sold as the sole bid for the only large issue scheduled—a $70 million issue of the State of Massachusetts—was rejected as unsatisfactory. In recent weeks a number of other State and local issues have also been postponed so it appears likely that the volume of State and local government bond sales in October will be substantially less than expected earlier. This week corporate security financing is expected to total $106 million and State and local government bond sales for $U6 million are scheduled as is a $35> million bond offering by the Higfc Authority of the European Coal and Steel Community. Long-tern bond yields - Changes in yields on long-term bonds were mixed last week. Yields on U. S. Government obligations, corporate bonds and lower grade State and local government bonds increased moderately, while yields on high-grade State and local government bonds were not changed. Short- and intermediate-term interest rates - Yields on 9 1 - * y Treasury bills and three- to five-year Government obligations rose last week. Yields on six-month Treasury bills were unchanged as were other short- and intermediate-term interest rates. Mortgage and bond yields - The spread between yields on new Aaa-rated corporate bond issues and FHA mortgages narrowed in September as mortgage yields declined slightly while yields on newly issued corporate bonds increased. Stock market excluding borrowing on September. Customers' other than brokers and credit - Total customer credit in the stock market, U. S. Government securities, rose $39 million in debit balances rose $28 million and bank loans to dealers rose $11 million. Borrowing by member firms of the New York Stock Exchange maintaining margin accounts, excluding borrowing on U. S. Government securities, rose $80 million in September. Most of the increase was in borrowing o n / _ customer collateral. Customers' net free credit balances rose $38 million. These and other data for September and August are shown in the table on the following page. -2- End of month Aug. Sept. 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 cariying 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 4,282 3,137 1,115 122 4,243 3,109 1,134 ill +39 +28 +11 +11 lit? i/l40 +7 2,143 1,875 177 1,059 2,063 1,820 173 1,021 +80 +55 +4 +38 Revised. Institutional investors - In August, savings inflow at three major savings institutions—life insurance companies, savings and loan associations, and mutual savings banks—totaled $1.2 billion, one-fifth laiger than in August 1959. This is the first time this year that savings inflow at all three of the institutions has been larger than in the corresponding month last year. (Time and savings deposits at commercial banks also increased much more this year than in August 1959.) Although savings and loan associations are the only type of institution showing a larger growth for the first eight-month period of i960 than a year earlier, savings inflow for the three institutions combined in this period was only slightly below 1959. The increase in savings capital this year has been 8 per cent larger, life insurance company assets 3 per cent smaller, and deposits at mutual savings banks nearly one-third smaller. The net increase in life insurance company assets totaled $576 million in August, one-sixth more than in August 1959. There was a modest net liquidation of U. S. Government securities in contrast with a net acquisition last year. Net acquisition of business securities was more than twice as large as a year earlier. The net increase in mortgage holdings was nearly one-third larger than a year earlier; such holdings have increased more than in 1959 each month this year with the exception of July. Share capital at savings and loan associations increased §492 million, one-fourth more than in August 1959 • (Inflow at these associations has been larger in each month this year than in the corresponding month a year earlier with the exception of April and July.) There was a further, but slight, liquidation of U. S. Government securities in August in contrast with a slight net acquisition last year. The increase in mortgage holdings continued to be large, although slightly below the increase last August. Last year, these associations had borrowed heavily, principally at the Federal Home Loan Banks, to supplement their savings inflow In financing their purchases of mortgages. Although they have generally reduced their indebtedness this year, they borrowed a slight amount in August. Deposits at mutual savings banks increased $105 million, nearly one-third more than in August 1959. This is the third successive month that growth in deposits has been higher than for comparable periods a year earlier. Savings banks used their increased Available funds mainly to enlarge their mortgage holdings, which rose tiearly one-third more than in August 1959. There was also a slight net acquisition of U. S. Government securities and a small reduction in holdings of business securities. Stock prices - Common stock prices, as measured by Standard and Poor's index of 500 common stocks, increased last week, closing on Friday at 5k.86. Trading volume was light, averaging 2.2 million shares a day, the smallest trading volume this year. More detailed inforaiation concerning recent capital market developments is presented in the attached exhibits. Developments in the Canadian capital markets are presented in Part Ii at the end of this report. Capital Markets Section, Division of Research and Statistics, Board of Governors of the Federal Reserve System. LONG-TERM BOND YIELDS CORPORATE In -5- ll.lh Exhibit B - Tables for Exhibit A Long-term Bond Yields High-grade Corporate Aaa 1/ U. S. Govt, long-term 2/ Spread between U. S. Oovt." and State and Corporate Aaa local Aaa State and local govt. Aaa y (Per cent) Low High Low High Low i960 - High Low 2.85 lull* 3.55 it. 61 U.09 it. 61 it. 23 2.16 (8/6) 3.76 (10/18) Sept,, 16 Sept,. 23 Sept., 30 Oct. 7 Oct. lit £ / it. 26 it. 26 3.8it 3.79 3.81 195U 1957 1958 1959 - 3.07 ( V 2 5 ) it. 37 (12/31) 3.83 (1/2) it.142 (1/8), 3.75 (8/5) i*-27 it. 28 it. 29 3.88 3.92 1.90 (9/2) 3.53 (1/7) 2.99 (9/1) .30 .60 .22 .50 .16 .59 .19 .30 .1*7 .3k .92 .53 .92 .53 3.13 3.13 3.18 3.21 3.21 .it2 .it? .it6 .IjO .37 .71 .66 .63 .67 .71 E 1 E 3.06 (3/26) . Lower-grade Date Corporate Baa 1 / State and local govt. Baa y Spread between Aaa and Baa State and Corporate local govt. (Percent) Low tfigh Low High Low i960 - High Low 3 . ^ (12/31) 5.10 (11/29) it.5l (7/11) 5.32 (12/31) it. 83 (ii/17) 5.36 (2/12) it. 98 (9/9) 2.93 (8/5) U.51 (8/29) 3.6it (5/1) it.it6 (7/2) 3.92 (3/26) lt.it6 (1/7) it.05 (9/1) Sept. 16 Sept, 23 Sept. 30 Oct. 7 Oct. lit 2 / U.99 5.02 5.05 5.09 5.12 it.09 it. 09 it. 13 it.15 it. 17 195U 1957 1958 1959 - .52 1.27 .77 .77 .56 .8it .71 .96 1.21 .93 .98 .79 1.08 .92 .73 .76 .78 .81 .83 .96 .96 .95 .9it .96 g/ Preliminary. 1/ Weakly average of dally figures. Average term of bgnds Included Is 25-26 years. 2/ Weekly average of dully figures. The series Include# bonds due or callable In 10 years or more. 3/ Thursday figures. Only general obligation bonds are lnoludedt average term Is 20 years. Hote.—Highs and lews are for Individual series and aey-be on different dates for different series. SHORT- AND INTERMEDIATE- TERM INTEREST RATES GOVERNMENT IU1HT YIELDS."/I PRIVATE -7Exhibit D - Tables for Exhibit C Short- and Intermediate-terra Interest Rates Government 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 ts LOO 2.50 Loo 3.00 3.00 3.00 3.00 3.00 3.00 .61 3.64 .58 1.57 2.63 4.59 2.13 (6/L1) — (5/29) 3.02 (12/26) (12/24) 4.9% (12/31) ( 2/20) 2.92 (1/2) (1/8 ) 5.07 (1/8) (8/5) 2.39 (8/5) 1.66 4.04 2.14 5.00 3.70 4.97 3.47 2.58 2.43 2.35 2.87 3.53 3.47 3.50 3.60 3.65 (lOAfi) 2.1# 2.54 2.80 2.82 2.88 2.88 (4/30) (10A6) (6/6) (12/21*) (1/2) (1/8) (9/23) .66 .26 .86 .04 .79 .19 .58 1.42 .29 .37 .47 .48 .34 .95 1.04 1.15 .16 .40 1.81 .38 1.20 1.10 Private Date Stock Exchange call loan 1/ Prime Finance company rate 1/ paper ]/ Spread between 3-month Treasury bill yield and finance company paper rates (per cent) 1954 1957 1958 1959 - Low High Low High Low 3.00 4.50 3.50 . 5.00 4.00 I960 - High Low 3.00 4.50 3.50 5.00 4.00 5.50 4.50 5.00 4.50 5.13 (1/22) 2.94 (8/26) Sept. 16 Sept. 23 Sept. 30 Oct. 7 Oct. 14 e/ 4.50 4.50 4.50 4.50 4.50 4.50 4.90 4.50 4.50 4.50 3.11 3.19 3.19 3.19 3.19 1.25 3.88 1.13 4.88 3.00 (12/31) (11/15) (8/8) (12/31) (3/6) 0 (12/18) .59 (7/19) -.35 (8/29) .86 (10/9) .13(12/4) 1.02 (3/25) .22 ( 4 A 5 ) .53 .76 .84 .79 .65 1/ Meekly rat* shown 1* that la affect at end of period. Discount rate la for Federal Reserve Bank of Hew York. Stoek exohang* call loan rate le going rate on oall loan* secured ty oustoaers' etook exchange eollateral at Mew York C i t y banks. Prime rate 1* that charged by large bank* en short-tens loins t* b u s i n e s s borrower* of the highest credit etaadliy. 2/ Mark*t yields weekly averages ooMputsd free dally closing bid prloes. Series ef 3-5 year Issues <wnsl*t* of eeleeled note* and boaCU. 3/ Average of dally rate* pul.llehed fay flmnue eompanle* for dlreotly placed paper for varying aaturlties In the 80-119 duy rang*. MoU.—Hlghe and lows are for Individual *erl#* aad may 6* on different date* for different series. F»r spread*. hl«h refer* to widest, and low to narrowe**.' STOCK MARKET STOCK MARKET CREDIT J MORTGAGE AND BOND HOME Aee CORPORATE YIELDS MORTGAGES - FHA BONDS -9Exhibit F - Tables for Exhibit B Stock M a r k e t Stock p r i c e i n d e x 1/ Common Trading stock volume 2 / y i e l d s 2 / (millions (per cent) of shares) Stock market custdmer credit Customers1I Bank Total debit b a l - | l o a n s t o ( M i l l i o n s of d o l l a r s ) 1957-59 - High Low i960 - High Low 39.78 59.50 53.52 August September Sept. 3 0 Oct. 7 Oct. 1 4 2 / 56.51 54.81 53.52 54.03 54.86 60.51 3.07 4.66 3.18 3.62 3.43 3.51 3.62 3.58 3.52 'fcZ 3.9 2.2 8 4,132 li 2.8 2.1* 2.2 4,243 4,282 n.a. n.a. n.a. 3,401 2,482 3,198 3,004 1,373 1,060 1,167 1,111 3,109 3,137 n.a. n.a. n.a. 1,UI5 1,160. n.a. iz ; s n.a.—Not available. g/ Preliminary. 1/ Standard and Poor's -rmposlta Index of 500 oomnon stocks, weekly closing prices, 1941-43«10. Monthly data are averages of daily figures rather than of Fridays' only. Highs aid lows are for Fridays' data only. 2/ Standard and Poor's opposite 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. 3/ Averages of daily trading voluae on the Hew York Stock Exchange. 4/ Bid of month figures for member firms of the New York Stock Exchange which carry margin accounts; excludes balances secured by U, S. Government obligations. 5/ Wednesday figures for weekly reporting member banks. Be eludea loans for purchasing or carrying 0. S. Government securities. Prior to July 1, 1959, such loans are exoludhd only at banks In New York and Chicago. Weekly reporting banks account for about 70 per oent of loan# to others. For further detail see Bulletin. M o r t g a g e and B o n d Y i e l d s 2 / 1959-1960 - High Low 5.57 (3/59) 4.81 2.74 5.29 4.29 i 9 6 0 - MayJune July August September 6.20 6.19 6.17 6.13 6.11 4.86 4.69 4.49 4.37 4.45 1953-1958 - High Low 5 . 6 3 (11/57) 4 . 5 6 (2/55) 6 . 2 4 (1/60) (6/57) (3/54) (9/59) (2/59) 4.12 2.84 4.61 4.12 4.46 4.45 4.41 4.28 4.25 Spread between new c o r p o r a t e bonds a n d Basoned b o n d s (9/57) (4/54) (1/60) (1/59) 1 Aaa corporate bonds 1 / New 3/ |Seasoned h / 1.96 .54 . 1.76 .83 t» FHA mortgages 2/ ? Date .90 -.12 .77 .08 1.34 1.50 1.68 .40 .24 .08 1.76 1.66 .09 .20 1/ Neither mortgage nor bond yields take into account servicing costs which are much higher for mortgages than bonds. Generally, bonds pay interest semi-annuallyt mortgages, monthly. Mortgage yields, if computed as equivalent to a semiannual Interest investment, would be slightly higher than given in the table. 2/ Based on FHA field-office opinions about average bid prices in the private secondary market for new-home mortgages for immediate delivery. Since late 1955, data relate only to 25-yeor mortgages with downpayments of 10 per cent or more, weighted by probable volume of transactions. Yields computed by FRB, assuming 25-year mortgages are paid off In 12 years. Dashed lines indicate periods of adjustment to changes in the contractual interest rate. 3/ First National City Bank of New York. Averages of offering yields of all new Issues of publlcly-sold bonds rated Aaa, Aa or A by Moody's Investors Service (except serial and convertible Issues and offerings of natural gas and foreign companies) weighted by size of issue. Yields on Aa and A Issues are first adjusted to an Aaa basis by the spread between yields of outstanding bonds in these categories and those on Aaa-rated bonds. The series reflects changes in Industrial comp osltlon, maturity, t%>e, eto. of new offerings. 4( Moody's Investors Service. Monthly averages of daily data. See Bchibit B. Exhibit G Long-term Corporate and State and Local Government Security Offerings and Placements (In millions of dollars) New capital I960 January February March Corporate 1/ 1 1 1959 1958 821 738 616 ij«2/ 1,03k a? 89k 785 887 July August September p/7k7 B/l,02k e/700 October November December e/1,000 1st 2nd 3rd kth April May quarter quarter quarter quarter 1st half Three quarters Year State and local 2/ 1958 1 1959 r/ | 8 575 63? 858 6k6 l,lkO 597 887 550 1,030 932 593 1,006 535 7k0 703 1,107 5k0 1,11k m 879 86k 900 862 518 920 e/kOO 2,151 2,367 e/2,U71 2,20k 2,567 1,979 2,6k2 3,139 2,623 2,760 2,300 1,936 2,311 e/1,826 k,5l9 e/6,989 k,771 6,750 9,392 5,762 8,522 10,823 k,2k7 e/6,073 H 860 728 I960 812 953 511 798 g 567 516 k65 806 k03 651 •w, k56 k7k k35 k55 like 1,571 2,276 2,2kk 1,860 1,365 k,67k 6,222 7,793 k,520 6,380 7,7k6 2,lk3 > Excluding finance companies k/ 1st quarter 2nd. quarter 3rd quarter kth quarter 1,722 2,150 e/2,021 Year e/ 1/ 2/ 3/ k/ 1,999 2,kl2 1,716 2,503 2,899 2,586 2,731 2,213 8,630 10>k29 Estimated. , g/ Preliminary. r/ Revised. 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. 1' ti.llt Exliibit H - H - O t h e r S e c u r i t y O f f e r i n g s 1/ (In m i l l i o n s of d o l l a r s ) Long-beiw F o r e i g n g o v e r n m e n t 2/ Federal a g e n c y 31/ I960 I960 I 1958 1959 1 1959 1 January February March April May June 2 81 60 2 196 3U 72 40 • 58 50 1*2 139 198 120 1 85 l 9 5 17 175 70 July August September 35, October November December Year 182 150 150 53 — April May June July August September % 175 354 — 199 Ih 86 547 992 707 % S 2hS s 264 569 632 280 2h6 467 399 289 123 369 235 343 hlS 358 243 288 4,179 3,910 6,047 505 October November December Year. - 435 312 468 296 2,321 Federal a g e n c y 3 / 479 475 511 2A52 — 220 58 123 273 291 — 98 150 33 30 70 233 460 523 I6h 190 128 295 268 — .i. mmmm 148 Short-term S t a t e a n d l o c a l government h / January February March 1958 1,163 251 199 359 500 371 208 489 144 486 209 161 675 289 329 72? : 437 206 330 s . li54 114 137 3,098 2/ Preliminary. 1/ Data presented In this exhibit differ from these in Exhibit E in that refunding issuns, an well as new oapltal Issues, are Included. Long-term securities are defined as those nati.ir5.ig in mare than one year. 2/ Includes securities offired in the United States by foreign goverrjnonts and their cubdivisions end by international organisations. inures: Securities and Exohr.nge Commission. . ~" 3/ Issues not guarantied by the U, S, (lovirnnar.l. Source 1 long-term, Securities and Btchange Conmlsslonj short-term, Federal Reserve, 4/ Principally tax and bond anticipation notes, warrants or certificates ar.ri Public Housing Authority not»s. In some instances PHA cotes included may have a somewhat longer tern than one year. Sourcei Bond Buyer. -12- Bxhibit I Large Long-term Public Security Issues for New Capital (Other than U. S. Treasury) 3/ Proceeds of Large Issues Offered (Millions of dollars) Month 1 9 5 9 - September October November December I960 - January February March April May July August September Corporate State and local government 199 I4OO 1*21 230 279 262 381* 309 139 1*1*2 303 581 266 211* 291* 163 217 388 283 225 370 231* 561 191 298 367 Other 2/ 175 20 70 100 320 191 71 28 30 75 25 Large Individual Issues Offered October 1 through 7 Issuer Type 2/ Amount Coupon (millions Maturity rate or Offering of net inter- yield dollars) est cost Rating CORPORATE San Diego Gas & Elec. Co. 1st mtg. bds. 30.0 Youngstown Sheet & Tube 1st mtg. S.F.bds. 60.0 Deb. Household Finance Corp. 50.0 Columbia Gas System Deb. 30.0 General Accept. Cozp. Sen. deb. - 20.0 STATE AND LOCAL GOVERNMENT 1990 1990 1981 1985 1976 l*-5/8 l*-l/2 1*—7/8 5-1/8 5-1/2 1*.63 l*.6o 1*.88 - 5.05 5.50 Aa Aa A None OTHER Federal Land Banks Bds. 1*2.0 1965 1* U.03 — 1-2 -13- Footnotea 1/ 2/ 2/ Includes corporate and other security offerings of *2.5 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. In the case of State and local government securities, G. 0. denotes general obligations; Rev.-Ut., revenue obligations secured only by income fran 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. -HiExhibit J Forthcoming Large Long-tern Public Security Offerings for New Capital (Other than D. S. Treasury) 1/ Ejected Proceeds from Forthcoming Large Issues Subsequent to date shown During month following date shown Date of computation Corporate - Sept. 30 Oct. 30 Nov. 30 Dec. 31 I960 - Jan. 29 Feb. 29 Mar. 31 Apr. 29 May 31 June 30 July 29 Aug. 31 Sept. 30 374 385 226 210 207 301 299 202 1*83 237 596 216 576 -- ^ Other 2/ 270 115 295 1*1*5 210 255 250 21*3 277 180 275 283 212 70 30 1*5 35 30 30 77 Cor P° r ( * t 9 local govt. 0 t h e r g/ 691* 509 271 280 252 372 3U* 357 553 1*55 1,006 731 836 1*70 336 1*85 51*5 310, 385 280 258 502 380 321* 283 336 70 30 1*5 35 60 30 127 Forthcoming Large Offerings, as of October lit Issuer Type Amount Approximate date (millions of offering of dollars) CORPORATE 1st mtg. bds. Louisville Gas & Elec. Co. S.F. deb. Pacific Lighting Gas Supply Co. Natural Gas Pipeline of America 1st mtg. bds. Natural Gas Pipeline of America Pfd. stk. 1st mtg, bds. Florida Power Co. Associated Dry Goods Corp. S.F. deb. Deb. American Telephone and Telegraph Co. Deb. John Deere Credit Corp. United Gas Corp.Bds. & deb. ^Pacific Gas & Electric.Co. 1st ref. mtg. bds. Idaho Power Co. 1st mtg. bds. Wisconsin Elec. Power Co. 1st mtg. bds. ^Commercial Credit Co. Sen. notes Commerce Oil Refining Corp. Deb., bds. & com. Liberian Iron Ore, Ltd. Bas. & stk. 16.0 25.0 25.0 15.0 25.0 20.0 250.0 50.0 60.0 60.0 15.0 30.0 50.0 1*5.0 30.0 Oct. 19 Oct. 20 Oct. 20 Oct. 20 Oct. 21 Oct. 21* Oct. 25 Oct. 27 Nov. 1 Nov. 2 Nov. 15 Nov. 16 Nov. Indefinite Indefinite -15J-2 Forthcoming Large Offerings, as of October lii (Cont'd) Type Amount Approximate date (millions of offering of dollars) STATE AND LOCAL GOVERNMENT Los Angeles County Flood Control Dist., California Chicago, Illinois, School District Pa. State Public School Bldg. Auth. Cook County, Illinois *Trenton, New Jersey *State of Mississippi Los Angeles Harbor Dist., Calif. New York State Housing Fin. Agency Los Angeles Dept. of Wtr. and Pwr., California Orleans Parish, La., School Dist. Kentucky Turnpike Auth. State of Massachusetts Dade County, Florida G.O. G.O. Rev.-Rent. G.O. G.O. G.O. Rev. Rev. Rev.-Ut. G.O. Rev. G.O. G.O. 10.0 15.0 21.3 25.0 10.9 12.0 12.0 100.0 12.0 10.0 55.0 &05> Oct. 18 Oct. 18 Oct. 19 Nov. 1 Nov. 3 Nov. 9 Nov. 15 November Indefinite Indefinite Indefinite Indefinite Indefinite OTHER High Authority of the European Coal and Steel Community Tennessee Valley Auth. Bds. and notes Bds. 35.0 50.0 Oct. 20 Nov. 15 *—Included in table for first time. 1/ Includes corporate and other issues of $15 mil l ion and over; State and local government issues of $10 million and over. 2/ Includes foreign government and International Bank for Reconstruction and Development issues and non-guaranteed issues by Federal agencies. Note,--Deletions for reasons other than sale of issue: Trustors' Corporation's $1*0.0 million participation certificates—withdrawn from registration. Exhibit X 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 16 18 29 Apr. 6 8 Hi 21 27 May 10 12 25 June 17 28 29 July 8 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 (3/31/54) 87 -3 *4.93 4.83 31 23 5.13^/ *5.08 *5.30 36 42 63 5.08 5.10 4.90 2 / 4.73^ 44 46 32 17 4.85 33 4.94 39 4.95 4.88 4.82 4.84 5.65 (9A8/59) 3.00 (3/17/54) 123 -15 5.07 17 *5.65 5.33 60 43 5.45 2 / 5.30=^ 51 28 5.00 4.93 11 7 4.98 21 5.30 50 5.10 5.20 26 33 4.95 11 39 32 25 27 4.93 11 4.88 8 13 4.80 24 Sept. 15 4.65 27 23 28 fcffic * Oct. 5 *—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. -17 Exhibit L Sources and Uses of Funds toy Life Insurance Companies Cash u. s. Govt. ities Value of assets at end of period: 1956 - Dec. 1957 - Dec. 1958 - Dec. 1959 - Dec. I960 - Aug. Uses of funds 1/ State and Business local govt, Mortgages securities 2/ ities Other Total sources or uses (In millions of dollars) 95,8kk 101,309 107,580 113,626 117^581 k5 15k 72 72 88 334 582 k85 k53 587 k76 913 119 139 136 116 135 157 21k 17k 211 251 2k0 315 -17 17k 108 80 97 60 208 101 95 92 13k 226 565 k38 362 k85 k98 k96 728 k9k 200 559 k99 722 27k 196 2k2 225 203 192 63 226 82 207 , 115 95 128 211 206 175 576 k6k 299 k29 51k k69 628 576 7,519 7,028 7,182 6,818 6,592 39,552 1*2,133 kk,6l2 16,977 18,159 22 -18 1 -17 172 191 129 21k 309 137 308 2k 37 20 26 32 . 12 126 139 lk2 186 lk5 291 53 30 66 1)9 79 23 9k 30 15 8 16 23 Changes: 1958 - July Aug. Sept. Oct. Nov. Dec. 110 k 11 19 -lk2 1959 - Jan. Feb. Mar. Apr. MayJune July Aug. Sept. Oct. Nov. Dec. -81 -57 -lk -:2k 10 3 -15 19 -31 22 33 99 303 -71 -185 22 -16 11 13 95 -185 -22 -131 -168 188 223 251 2k2 193 2h2 21h 75 95 208 207 227 i960 - Jan. Feb. Mar. Apr. May June July Aug. Sept. -91 -53 -30 39 -12 33 12 U 163 -36 -167 -85 -62 -102 73 -ko 128 125 10k 13k 231 125 167 168 55 1/ a 2,23k 2,377 . 2,691 3,177 3,k6i* 12,272 13,206 lk,6k0 15,998 17,217 1,273 1,29k 1,363 1,327 1,229 20 25 35 21 26 13 10k k3 32,99k 35,271 37,092 39,299 kO,920 . Uses of funds represent net changes in assets and therefore reflect net , rather than gross, uses. 2/ Includes securities of domestic corporations only. Source.—Institute of Life Insurance. -18- Sources and Uses of Funds by Savings and Loan Associations Cash Value of assets at end of period 1956 - Dec. 1957 - Dec. 1955/- Dec. 1959 - Dec. i960 - Aug. Changes: 1958 - July Aug. Sept. Oct. Nov. Dec. 1959 - Jan. Feb. Mar. Apr. May July Aug. Sept. Oct. Nov. Dec. i960 - Jan. Feb. Mar. Apr. May r/ June r/ July r/ Aug. Sept. Uses of funds 1/ U. S. Govt. Mort- Other gages 2j'assets ities Total sources or uses Sources of funds Net Borrowchange Other savings ing 3/ capital (In millions of dollars) 2,119 2,146 3,585 2,201 2,077 2,782 3,173 3,819 4,474 4,516 35,775 40,049 45,627 53,093 57,670 2,199 2,770 3,108 3,707 3,865 1*2,875 48,138 55,139 63,475 6b,128 37,148 la,912 147,976 51i,556 58,915 1,317 1,379 1,441* 2,388 1,825 4,380 4,847 5,719 6,531 7,388 -290 -70 -77 -107 42 335 42 110 146 104 51 37 55k 564 578 605 470 528 -90 12 45 137 102 -53 216 616 692 739 665 847 73 360 447 507 480 1,072 -37 51 84 58 41 212 180 205 161 174 144 -437 -298 -26 -2 -182 26 245 -432 -43 -53 -68 65 384 297 97 76 105 23 -4 104 17 -7 7 -34 -26 k02 427 593 705 #4 81,0 783 727 670 621 459 485 -55 .80 98 151 178 10 -108 22 65 88 140 -70 346 578 765 779 981 1,091 347 723 675 648 630 773 434 408 529 420 604 1,090 190 394 ii44 399 483 1,185 -181 -56 -5 97 63 313 31 118 148 136 57 223 93 226 .241 262 314 -312 126 211 83 113 90 -635 -314 -33 49 -30 81 329 -214 30 201 67 -27 1 15 -148 -28 -33 320 398 54i> 566 634 779 665 695 -113 62 100 104 209 468 409 623 372 630 1,216 180 492 -453 -125 -127 38 3 211 -121 12 79 210 171 231 306 -519 236 187 -4 -128 -1 94 494 607 641 939 908 295 691 i/ Revised. 1/ Uses of funds represent net changes in assets and therefore reflect net, rather than gross, uses. Savings and loan associations do not bold business securities and data on holdings of State and local government bonds, presumed to be small, are not available. 2/ Prior to 1957# data adjusted to include mortgage pledged shares as currently reported. Digitized2/for FRASER Advances from Home Loan Banks and other borrowing. Source.—Federal Savings and Loan Insurance Corporation. http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Exhibit N -19- Sources and Uses of Funds by hutual Savings Banks Cash Value of at end of 1956 19# 1958 1959 I960 - assets period Dec. Dec. Dec. Dec. Aug. Uses of funds 1/ busi- State & U. S. ness local Govt, securgovt, securities securities 2/ ities 7,971 7,552 7,266 6,861* 6,537 3,523 it,331 L,973 lt,81t9 4,9# -66 -5 18 -8 -38 101 11 19 -27 -92 -32 31* 8 3l* -6 -2 1*7 1959 - Jan.2/ -96 Feb. 18 Mar. 1*5 Apr. -ill* May 8 June 1*3 July -79 Aug. 3 Sept. -2 Oct. -27 Nov. 20 Dec. 111 119 39 -16 6 -31 58 -20 I960 - Jan. Feb. Mar. Apr. May June July Aug. Sept. Net change in deposits 698 19,529 20,951 761 23,039 855 21*,768 910 26,017 1,027 33,311 35,168 37,779 30,032 31,695 193 198 181 195 151 171* 208 125 175 155 161 11*5 179 156 MortOther gages Other (In millions of dollars) 920 890 921 829 76U Changes: 1958 - July Aug. Sept. Oct. Nov. Dec. Sources of :Funds Total sources or uses 62 -bit 13 -85 -13 -12 -32 -281 -85 -12 -131 37 ljl -86 -9 -11 32 -118 108 -69 -7 -93 —1)8 30 —80 -1*7 13 -2 -55 -28 23 -12 -9 52 -19 13 57 38 -21 669 682 725 722 687 8 2 2 -3 -1 -7 17 -1* 111 -33 10 19 1* -1 8 -20 -8 160 137 12U -21* 132 -6 15? 116 150 129 161 169 159 206 -9 3 13 -23 -1* -1* -5 38,^1*2 31*,983 3,279 3,1*73 3,738 3,959 39,980 35,595 i*,385 -28 29 29 -1*6 1*3 - 3 152 251 237 1*0 123 309 88 11*3 95 1*2 1*18 61* 108 -30 -55 81 -109 -58 32 38 -32 1*5 39 -12 33 31 -37 1*2 -12 175 216 330 -10 217 161 32 192 163 -283 65 218 122 113 313 6 120 202 -51* 80 197 -187 -27 31*0 53 103 17 -16 97 -1*1 86 112 -31* -96 92 -122 -12 1*3 1*1 -21 63 -59 1*2 -11 167 319 -132 176 178 118 50 320 -95 58 221 21 20 223 105 31*,01*1 267 -68 57 117 -1 -37 116 -1*3 97 118 r j Revised. " 3/ Uses of funds represent net changes in assets and therefore reflect net, rather than gross, uses. 2/ Includes Canadian government and political subdivisions, International Bank for Reconstruction and Development, nonguaranteed Federal agency and other bonds as well as corporate bonds and stocks. 2 / Adjusted to eliminate the effect of a consolidation of a large savings bank w i t h a commercial bank. ^ Source.—National Assoc. of Mutual Savings Banks and Federal Deposit Insurance Corp. -20- October 17, I960 Part II - Canada There was a general rise in interest rates on Government securities and. in short-term money rates in Canada last week. The Canadian Treasurybill rates rose sharply but continued below the yields on comparable U.S. Treasury bills. As the result of a continued premium on the 3-month forward Canadian dollar, the net incentive was again in favor of holding the Canadian bill. Bond yields rose slightly for all maturities, but there was little change in the spread over comparable U.S. bonds. Stock prices rose slightly in early October after declining through September. The Canadian dollar showed little change during the week. Money market. There was another sharp rise in Treasury bill rates last week. The average yield on the 3-month Treasury bill rose 20 basis points to 2,U8 per cent from 2.20 per cent the week before.(see Table). The 3-month yield is now 80 basis points above the low of September 22. The average yield on the 6-month bill rose 30 basis points from 2.^2 per cent to 2.82 per cent, and now stands 83 basis points above the low of September 22. For the first time in 11 weeks, the Bank of Canada was a heavy purchaser of bills during the week. The Bank bought $UU millionj the general public and the chartered banks together sold $39 million. Recent capital flotations have probably contributed to the upward pressure on short-term rates during the last two weeks, particularly the new CNR issue (see Capital Market Developments, September 19, I960) in the week of October 6 and the new Bank of Nova Scotia issue (see Capital Market Developments, September 12, i960). The average closing on day-to-day loans last week was 2.25 per cent compared with l.$8 per cent the week before. With Canadian yields rising more sharply than U.S. yields, the United States short Treasury bill was only 12 basis points above the Canadian short bill. Due to the continued premium on the forward Canadian dollar, however, the net incentive on a covered basis continued to favor the Canadian bill; this net incentive increased during the week from 0.22 to 0.31 per cent per annum (see Table). The Canadian press commented that chartered banks recently reduced their rates on call loans to investment dealers. For almost a year, the banks had been charging the prime rate of 5-3/U per cent on these loans. A loan secured by a Government of Canada security will be 3-1/2 per cent for maturities less than 3 years, b-l/2 per cent on 3- to 5-year maturities, 1|-3A per cent on 5- to 10-year maturities, and 5-l/U per cent on maturities over 10 years. In early October there were sharp increases in the yields on Canadian commercial paper in the leading Canadian acceptance houses. The increases followed sharp declines in September. On October 6, the spread favoring the U.S. paper was.eliminated, as noted in the following table showing a comparison of Canadian and U.S. yields based upon leading houses in each country: 1- to 3-month Commercial Paper Aug. 25 Sept. 15 29 Oct. 6' 13 Canada United States 2.75 2.50 2.00-2.50 2.50-3.00 2.75-3.00 2.25-2.50 3.00 2.75 2.75 2.75t3.00 Spread • + 0.J8 -0.50 - 0.50 0 0 Bond market. Bond yields for all maturities rose last week; some maturities rose by as much as 10 basis points (see Table). The spread between selected comparable Canadian and United States securities (Thursday yield for bills and Wednesday yield for bonds) were as follows (figures in parenthesis refer to the previous week): -0.12 -0.03 0.57 0.87 1.07 per per per per per cent cent cent cent cent on on on on on a 91-day bill (-0.27) a 182-day bill (-0.35) an 8-year bond (0*57) a 30-year bond.(0.87) a 35-year bonditl.OO) The chartered banks purchased $23 million of bonds while the general public sold $27 million. The Bank of Canada sold only $1 million during the week. The CNR issues of $75 million, U-l/2 per cent due 1967 and $175 million of 5 per cent, due 1987 were well received in the market where over $200 million of debt had been retired since March. The City of Quebec offered at par a Swiss franc 20 million loan ($U.6 million) on the Swiss market at U-l/2 per cent. On October 7 through October 12. The proceeds are to be used for municipal investments. During the first 9 months of the year the total outstanding Government of Canada debt rose by $211 million from $17,135 million to $17,3U6 million (see Table). During the April through September period, the Canadian Government's borrowing needs declined as a result of the budget surplus. The sharp rise in debt in October reflects the new CNR issue. Speach by Governor of Bank of Canada. In a speach before the Canadian Chamber of Commerce on October 5, Governor Coyne again warned Canadians against living beyond their means. He pointed out that second quarter GNP declined in Canada and seasonally adjusted unemployment continued to increase as the rise in the labor force continued to exceed new ~~ jobs, in spite of easing in monetary policy over the last six months. There was a SUOO million rise in bank loans from the seasonal low of February last, and a $280 million rise in chartered bank deposits, which are now $150 million above last year. He commented, "this is a moderate / increase and I hope it will continue to qualify for the description •moderate,1 but there has been no 1 tightness1 in the monetary situation for many months." Interest rates on Government securities have fallen continuously and more recently mortgage rates also declined. The Governor stated that, "there has been an ample supply of funds in the capital market to provide for the borrowing requirements of Canadian and local governments, -Pawhile the Federal Government has incurred little or no increase in the bonded debt except in the field of Canada Savings Bonds." However, Governor Coyne continued to critize local government borrowing from abroad which increases this nation 1 s ". . . already hazardous foreign exchange liabilities . . . " during a period when ample funds are available in Canada. He also pointed to reducing the large current account deficit in the balance of payments and replacing imports by domestic production thus raising the level of employment. He was also critical of the increasing degree of foreign domination, " . . . and especially American domination of Canadian economic life /which7 has increased, is increasing, and ought to be deminished." "" Stock exchange. The price of industrial stock on the Canadian exchanges rose slightly during the early weeks of October -after declining through September. On October 11 prices on the Toronto market dropped over 2 points while Montreal held steady, and the New York Standard and Poor index rose slightly as noted in the following table. Toronto I960 - High Low Sept. 1 30 Oct. 5 7. 11 2.32.# U73.38 505.56 1*83.56 U83.9U U90.25 - U87.9U Montreal 27U.8 2#.3 271.1 260.6 261.1 262.5 262.7 New York Standard & Poor 60.51 55.98 60.51 56.70 56.52 57.20 57-U3 Foreign exchange. The spot rate on the Canadian dollar closed /-at 102.16 (U.S. cents) last Thursday compared with 102.20 (U.S. cents) the week before (see Table)*. The premium on the 3-month forward Canadian dollar continued at 0.1*3 per cent per annum compared with 0.U9 per cent the week before. British Commonwealth Section Division of International Finance Board of Governors of the Federal Reserve System -23Selected Canadian Money Market and Related Data 3-mo, Treas. bills Canada Spread U . S . V over U.S. 1959 - High Low 1960 - High Low 6.16 3.25 5.1L 1.68 U.U9 2,80 U.63 2.15 2.96 0.30 0.90 -0.82 Net incentive to hold i C a n a d i a n doT>ai» Spot 0/ 3-mo. forward discount t premium (•»' 105.51 102.58 105.27 0.9k -0.57 0.99 -0.72 102.16 Sept. 8 -0.22 -0.U6 103.06 103.13 0.2U 2.09 2.55 0.U2 -0.U6 103.08 103.19 -0.0k 2.07 2.53 15 -0.82 1.68 102.63 22 2.50 102.75 0.U9 -0.33 -0.66 102.28 102.38 -0.23 0.U3 29 1.70 2.33 Oct. 6 0.22 102.20 102.33 -0.27 2.20 0.U9 2.U7 2.60 -0.12 102.16 102.27 0.31 0.U3 2.U8 13 a/ Average yield at weekly tender on Thursday. Ty Conposite market yield for the U.S. Treasury bill on Thursday close of business, c/ In U.S. cents. 3 / Spread between spot rate and 3-month forward Canadian dollar on Thursday closing, expressed as per cent per annum. e/ Spread over U.S. Treasury bill (column 3), plus 3-month forward discount or premium (column 6). Selected Government of Canada Security Yields 6-mo. Treas . bills Spread over Canada O.Sjb/ 1959 - High Low I960 - High Low .lUi Sept, 21 28 Oct. 6 13 J c/ */ e/ y %f h/ 6.2U 5 oil 5.33 1.99 2.32 2.36 1.99 2.05 2.52 2.82 *»• ' Intermediate bonds (8 yr.) Spread over Caayift U.S.d/ s3£ —— 0.85 -0.86 5.37 K.50 5.55 U.09 1.11 0.21 -0.50 -0.U8 -0.86 -0.78 -0.35 -0.03 U.09 U.17 U.lU U.09 U.23 U.27 o.Uli 0.60 0.67 0.52 0.57 0.57 —— Long-term bonds (20 year) (35 year; Spread Spread Canada Canada • 5.30 U.UU 5.U2 U.63 U.63 U.68 U.66 U.66 U.72 U.77 — a 1.22 0.85 1.61 0.95 0.85 0.88 0.92 0.91 0.87 0.87 U.68 U.69 Ui70 U.70 • U.7U U.8U 0.95 0.97 1.03 1.01 1.00 1.07 —— 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 / U per cent of June 1 9 6 7 - 6 8 # Spread over U.S. Government 2 - 1 / 2 per cent of 1963-68. Government of Canada 3 - l / U per cent of October 1979# Spread over U.S. Government 3 - l A per cent of 1 9 7 8 - 8 3 . Government of Canada 3 - 3 A per cent of September 1 9 9 6 - March 1 9 9 8 . Spread over U.S. Government of 1 9 9 5 , — —— 5.05 U.73 5.28 U.68 -2kCanada: Changes In Distribution of Holdings of Canadian Government Direct and Guaranteed Securities (millions of Canadian dollars, par value; Bank of Canada Treas# Bonds bills Aug. 11 18 25 31 Sept . 7 1U 21 28 Dct. 6 13 - 12 - 3 - 6 0 0 0 - 16 - 27 - 1 + uu Government - Total + 5 + 17 + 1 0 0 0 0 - 2 + 5 - 1 + 15 + 2 + 1 + h + u 0 + 3 - 1 + 3 + 2 Chartered banks Treas. Bonds bills - 8 + 21 + 2h + + + + + - 11 11 8 52 m 2 20 General nublio savings Treas. Bond! bonds bill* + 1 + 10 + 2 + 9 + 18 + 11 + 3 + .16 + 68 + 23 + - 5 5 6 5 h 2 7 5 5 5 + + + - 11 19 lU 10 13 3 37 1U 3 19 - 9 - 23 - h - 9 - 19 - 12 0 - 5 +165 - 27 rarces Bank of Canada, Weekly Financial Statistics* Change in Government of Canada Debt Outstanding from September 30» 1959 (millions of Canadian dollars) 1959 Sept. 30 Change to Dec. 1960 March 31 June 30 Sept. 28 Oct. 12 Source: Treas. bills Savings bonds 2,02k + 53 2,662 + U8 - 160 - + 5 10 + 550 - 69 8U - 10 - 55 Direct and guaranteed debt 11,990 - Ht3 + 195 + 108 7 + 239 Total 16,676 + U59 + 175 - 136. - 67 + 239 Bank of Canada, Statistical "ummary and Weekly Financial Statistics. CANADA THREE-MONTH Thundoy figures UNITED STATES T R E A S U R Y BILL R A T E S Pi - - 11A/v Vyj J 'X-/— 1 1 11 11 1 1 1 1 11 11 11 1 RATE DIFFERENTIAL A N D FORWARD CANADIAN DOLLAR /V RATE DIFFERENTIAL W I T H FORWARD EXCHANGE- COVER