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Not for Publication DECONTROLLED AFTER SIX MONTHS
September 6 , i 9 6 0 .
CAPITAL MARKET DEVELOPMENTS
UNITED STATES AND CANADA

8

L

•

( Including Monthly Review of Financial
"Developments in the United Kingdom)
Part I - United States

One large corporate bond issue with proceeds of $125 million—
by Republic Steel Corporation—and a State and local government bond
issue for $13 million were sold last week. This week, ending September 9,
no large corporate issues are scheduled for sale, but three large State
and local government bond issues with aggregate par value of $82 million
are on the calendar.
Long-term bond yields - Yields on high-grade Corporate and
State and local government bonds were stable last week. Yields on longterm U. S. Government bonds rose slightly while those on lower grade
corporate bonds declined.
Short- and intermediate-term interest rates - Yields on shortand intermediate-teim Treasuiy securities increased last week. The yield
on three- to six-month directly placed finance company paper was raised
from 2-7/8 - 3 per cent to 3 - 3-1/8 per cent.
September new security volume - Corporate securities publicly
offered and takedowns on privately placed; securities are expected to total
$700 million in September, about the same as a year earlier but one-fourth
less than in August. State and local government bond sales are estimated
at $600 million during September, the same volume as in August but one-fourth
larger than in September i 9 6 0 .
FNMA secondary market operations - Offerings to FNMA under its
secondary market operation program declined moderately in July to the lowest
level since June 1959. Purchases, which had declined sharply in June, rose
again to about the May level reflecting in part the increase in purchase
prices announced early in June. The Association again raised its purchase
prices in mid-August. On August 30, FNMA sold $125 million of 10-year
h-l/8 per cent secondary market operation debentures priced to yield lu25
per cent. The proceeds were used to refund in part an issue of maturing
securities.
Stock prices - Stock prices, as measured by Standard and Poor's
index of 500 common stocks, declined last week closing on Friday at 57.00.
Trading volume continued moderate, averaging 3.0 million shares per day.
Capital Markets Section,
Division of Research and Statistics,
Board of Governors of the Federal Reserve System.




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

HIGH-GRADE

f

LOWER-GRADE




M.S.
U

GOVERNMENT

-3-

Exhibit B « Tables for Exhibit A
Long-term Bond Yields
Higjh-grade

W.Ik

Date

Corporate
Aaa 1/

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

State and
local govt.
Aaa 2/

U. S. Govt,
long-term 2 /
(Per cent)

195k
1957
1958
1959

- Low
- High
- Low
-High
Low
i 9 6 0 - High
Low

2.85 (k/23)
k.lk (9/27)
3.55 (5/2)
k.6l (12/31)
k.09 (1/9)
k.6l (1/29)
k.23(9/2)

2.k5
3.76
3.07
k.37
3.83
k.k2
3.75

Aug. 5
Aug. 12
Aug. 19
Aug. 26
Sept. 2

h.3k
h.30

3.75
3.78
3.81
3.81
3.8k

2/

k.26
k.23
k.23

(8/6)
(10/18)
(k/25)
(12/31)
(1/2)
(1/8) '
(8/5)

i.90 (9/2)
3.k5 (8/29)
2 . 6 k (yi) v
3.65 (9/2k
3.06 (3/26)
3.53 (1/7)
2.99 (9/1)

.30
.60
.22
.50
.16
.'59
.19

.30
.17
.3k
.92
.53
.92
.53

3.22
3.1k
3.03
2.99
2.99

.59
.52
• k5
.k2
.39

.53
.6k
.79
.82
.85

Lower-grade
Corporate
Baa 1/

State and
local govt.
Baa J/

Spread between
Aaa and Baa
State and
Corporate
Ilocal govt.

SMi
mm
(Per cent)

195k
1957
1958
1959

-

Low
High
Low
High
Low
1960 - High
Low

Aw?. 5
Aug. 12
Aug. 19
Aug. 26
Sept. 2 2/

3.1* (12/31)

5.10 (11/29)

2.93 (8/5)

1».51 ( 7 / n )

5.36 (2/12)
5.01 (9/2)

5.15
5.11

5.06
5.03
5.01

3.92 (3/26)
k.k6 (1/7)
k.o5 (9/1)
k.2h
ll.21
k.ll
it.05
lt.05

•

.52
1.27
.77
.77
.56
.8k
.71

.96
1.21
.93
.98
.79
1.09
.92

.81
.81
.80
.80
.78

1.02
1.07
1.09
1.06
1.06.

p/ Prellalnary.
y Meekly average of dally figure#. Average term of bonds Included Is 16-26 years.
2/ Weekly average of dully figures. The series lnoludss bonds due or eallable In 10 years or more.
3/ Thursday figures. Only general obligation bonds are lneludedt average tere Is 20 years.
Mote.—Highs and lows are for Individual series and etmy be on different dates for different, series.




SHORT-

AND

INTERMEDIATE-

TERM

INTEREST

RATES

GOVERNMENT

MRE YEDAI
AKT IIS/
w .

PRIVATE




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

Discount
rate 1/

3-month
bills 2/

Yields
6-month
bills 2/

3-5 year
issues 2/

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

(per cent)

195k - Low
1957 - High
1958 - Low
1959 - High
Low
i 9 6 0 - nigh
Low

1.50
3.50
1.75

A up:. 5
iiUf. 12
Anf. 19
Aug. 26
Sept. 2

3.50

d

h.00

2.50

Loo

3.00
3.00
3.00
3.00
3.00

.61
3.64
.58
U.57
2.63

__
(6/11)
1.66
(10/18) • —
U.olt
(2/29) 3.02 (12/26) 2 . 1 4
(12/26) lt.91 (12/31) 5 . 0 0
(2/20) 2.92 (1/2)
3.70

(V30)
(10/18)
(6/7)
(12/2U)
(1/2)

1.59 (1/8)
2.13 (8/5)

5.07 (1/8)
2.39 (8/5)

1.97 (1/8)
3.hi (8/26)

2.13
2.18

2.39
2.W

3.19
3.52
3.52
3.it7
3.51

2.31
2.13
2.53

2.66

2.70
2.82

wee
w*

.66
.86

.26
.79
.19

1.1*2
.1*0

.58

1.81

.16

.26
.30

.35
.27
.29.

.Oh

.38
1.36

1.3h

1.22
l.Ol;
.98

Private
Stock Exchange
call loan 1/

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

195h
1957
1958
1959

-

Low •
High
Low
High
Low
I960 - High
Low

3.00
1.50
3.50
U.75
3.75
5.5o
k.5o

Aup.
Aue.
Allf.
Aug.
Sent.

5.00
5.00
5.00
L50
l.5o

5
12
19
26
2

3.00
L50
3.50
5.00

Loo

5.00

h.so

1.25
3.88
1.13
L88
3.00
5.13
2.9h

5.oo
5.oo
L5o

5.00

2.9k
2.9)i
2.9k

2.9I4

It.5o

3.01

(12/31)
(11/16)
(8/8)
(12/31)

(V6)

(1/22)
(8/26)

0 (12/18)
.59 (7/19)
- 3 5 (8/29.)
.86 (10/9)
.13 (12/W
1.02(3/25)
.22 (1/15)
.81
.76
.63
.51

.1*8

1/ Weekly rat* shown le that In 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 by customers' stock exchange collateral at
New York City banka. Prime rate Is that charged by large banks on short-term loans to business borrowers of
the highest credit etending.
2/ Market yield; weekly averages computed from dally eleslng bid prices. Series of 3.5 year Issues oonslstu of
selected notes and bondi.
3/ Average of dally rates published by finance companies for directly placed paper for varying maturities In the
80-178 day range.
Note.—Highs and lows are for individual series and may be on different dates for Afferent series. Per spreads,
nigh refers to widest, and low to narrowest.




STOCK

MARKET

FEDERAL

NATIONAL

SECONDARY

MARKET

MORTGAGE

ASSOCIATION

OPERATIONS

I-fo'-l




i I960

Exhibit

F

Tables

f o r KxliiblL E

Stock Market
Trading

Common
Stock

Date

price

Stock market

i n d e x 1/

yields

2/

(millions

(per cent) of

customer credit

Customers1

volume 2 /
Total

ances h/
( M i l ] .ions o f

1957

-59

i960

Bank

debit bal-

shares)

loans

3,1*01

60.51

(7/31/59)

3.07

1*.3

39.78

(12/27/57)

1.66

1.1*

3,551.

2,W2

1,373
1,060

59.50

- High

(1/8)

3.18

4,365

3,198

1,167

3.51

3.9
2.1*

a,132

3,00k

1,111

3.45

2.7

3,001*

1,129

n.a.

' 1,133

- High
Low

5k.2h

July

(3/11)

lt,76U

to

"others" 5 /

d o ]L i a r s )

56.51

3.1*3

2.8

U.133
n.a.

Aug.

19

57.01

3.hi

2.7

- n.a.

n.a.

1,127

Aug.

26

57.60

3.38

3.1

n.a.

n.a.

1,133

57.00

3.1*0

3.0

n.a.

n.a.

n.a.

55.8k

August

Sept.

2

g/

.

z
n.a.~Not avail able.
g/ Preliminary.
1/ Standard and Poor's r«mposlte Index of 500 common stocks, weekly dosing prloeai-1941-43=10. Monthly data
are averages of dally figures rather than of Fridays* only. Highs and lows are for Fridays' data only,
2/ Standard end 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.
3/ Averages of dally trading volune on the New York Stock Qcohange.
4/ tod of month figures for member firms of the New York Stock Exchange which carry margin accounts\ excludes
balances secured by U. S. Government obligations.
5/ Wednesday figures for weekly reporting member banks. Excludes loans for purchasing or carrying U, S.
Government securities* Prior to July 1, 1959, such loans are excluded only at banks in New York and Chicago,
Weekly reporting tonka account for about 70 per oent of loans to others. For.further detail see Bulletin.

Federal National Mortgage Association
Batimated Offerings to
Date

Total

Immediate
purchase

Secondaiy Market Operations 1/

FNMA
Standby

(Millions
1959

Purchases
by

VHVA

commitment

by

of dollars)

109.5

- July

92.5

17.1

62.3

.3

123.1

109.9

13.3

.3

*U£.
Sept.,

11*1.3

131*. 6

6.5

71.7
85.1*

Oct.

108.3

101.8

6.5

105.5

Nov.

105.6

100.3

5.3

92.6

Dec.
1960

Sales
Il'NMA

116.3

lll.lt

1*.9

- Jan.

137.6

128.3^

9.3

92.2
86.1

135.8

M r .

133.2

128.9
121*. 6

6.9
8.6

Apr.

103. h

96.1

7.3
1*.7

Feb.

98.5

93.8

June

100.2

9l*.0

July

88.0

82.9

May

6.1

116.7
.

135.0
102.6
91.9
60.8

3.6
1.0

imM&msmi
%/

comltwent contracts. Date exclude

Liquidating Programs.


5.1

93.7

3.2

P181A activity under Special Assistance and Management and

Exhibit G
Long-term Corporate and State and Local Government
Security Offerings and Placements
(In millions of dollars)
New capital
I960

Corporate 1/
1
1 1959

1958

I960

728

State and local 2/
1
1958
1
1959

736
623
575

577
712
860

821
738
6k6

April
May

766
567
1,03k

891*
785
887

July
August
September

e/800
e/925
e/700

535
7k0
703

^5ko
1,11k

879
861+
900

862
518
920

2,20k
2,567

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

January
February
March

October
November
December
1st
2nd
3rd
hth

quarter
quarter
quarter
quarter

1st half
Three quarters
Year

2.151
2,367

14,519

4,771
6,750
9,392

1,5533/
l,lk0

s

5,762
8,522
10,823

551
fi/970
e/550
e/600
.e/600

639
858
6L6

812
953
511

932
593
1,006

798
895
551

1
I

806
k03
651
k56
k7k
k35

i,57i

l,93k
E/2,2k9

E/k,l83.'

f:iS

2,276
2,2kk
1,860
1,365

k,67k
6,222
7,793

k,520
6,380
7,7k6

2,11,3

Excluding finance companies k/
1st
2nd
3rd
kth

quarter
quarter
quarter
quarter

1,722
3/2,067

1/
2/
3/
h/

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

87630

Year

1,999
2,kl2
1,716
2,503

10,k29

%

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.




I

H.llj

Exilibit H

-9-

Other Security Offerings 1/
(In millions of dollars) •
Long-bem
Foreign government 2/
Federal agency 2 /
1
I960
I960
| 1959
1959
1 1958
1 1958
January
February
March
April
May
June

33
72
4o

July
August
September
October
November
December

196
53 -

58
50
42

-

81
60
2

139
198
120

11*8
354

85
1
35,

175
70

9
5
17

__

182
150
150

—

199
175

523
—

—

164

98
150

—

220

33
30
70

58
123
74

66

547

Year

1,163
251

992

707

Short-term
State and local government k/

—

2,321

Federal ag<ency 3 /

January
February
March

268
345
365

190
428
295

233
460
273

479
463
512

359
500
489

371
208
144

April
May
June

365
351

5#
411
245

357
354
264

509
632
435

486
675
289

209
161
329

July
August
September

207

246
467
399

289
423
369

312

727
365
665

437
206
330

235
343
358

?31
415
243

733
471
288

454
114
137

4,179

3,910

6,047

3,098

297

October
November
December
Year

2/ PreMiilntry.
1/ Data presented in this exhibit differ from those in Exhibit E in that refunding lsruns, an will as new
capital Issues, ere included. Long-term Mauritius are dm fined as those natuvxig in mare. thar. one year.
2/ Inoludos securities off-ired in the Unltod States by foreign governments and their ruodivisions and by
ln'-erwitlonal organisations. Touroei Securities ami Sxulir.^ge Commission,
3/ Issues not guaranteed by the U. S. Go/irnnar.!.. Souroei long-tarn, Securities end Btehangt Commission;
short-term, Federal Reserve.
4f Principally tax and bond anticipation notts, mrrnnts or certificates ar.4 Public Housing Authority
not»*. In some instances PHA rotes Included may hiva a zomerrhat longer tens tb<xn one year. Source: Pond Buyer.




-10-

Exhibit I
Large Long-tern Public Security Issues for New Capital
(Other than U. S. Treasury) 3/
Proceeds of Large Issues Offered
(Millions of dollars)

Coiporate

Month

State and
local government

110
363
199
ilOO
421
230
279
262
384
309
139
442
303

1959 - July
August
September
October
November
December
I960 - January
February
March
April
May
June
July

19U
263
214
29k
163
217
388
283
225
370
231*
561
191

Other 2/

50
98
172
20
70
100
320
191
71
28
30

Large Individual Issues Offered August 1 through September 2

Issuer

Type 3/

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

Deb.
Pouthwestem Bell Tel. Co.
100.0
Texas Eastern Trans. Corp, S.F. deb.
25.0
El Paso Natural Gas Co.
Com. stk.
33.0
Conv. deb.
Consumers Power Co.
38.1
Deb.
Michigan Bell Telephone Co.
35.0
Deb.
General Motors Accept.Corp.
150.0
Southern Calif. Edison Co. 1st ref.mtg.bds.60.0
Eeb.
McKesson & Bobbins, Inc.
15.0
|
Republic Steel Corp.
j S.F. deb.
125.0
STATE A ML LOCAL GOVERNMENT
Chesapeake Bay Bridge and
Tunnel Commission
»
Los Angeles Co./ Calif.
State of California




Eev.-Ut.
Rev.-Ut.
Rev. -I't.
G.O.
0.0.

70.0
30.0
81.3
11.0
15.0

Rating

1995
1980

1,-5/8
5-3/8

14.55
5.38

Aaa
Ba

1975
1996
1982
1985
1980
1985

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

4.38
4.53
4.68
4.38
4.61
4.44

Aa

2000
2000
2000
1961-80
1965-90/85

5.62
5.62
5.62
3.31
3.31

4.88
5.50
5.75
1.70-3.45
2.40-4.00

Aa
A
. Aa

Aa
Aa

Large Individual Issues Offered August 1 through September £ (Cont'd)

Issuer

Type y

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

Rating

STATE AND LOCAL GOVERNMENT
(Cont'd)
State of Vermont
G.O.
State of Washington
Rev.-S.T.
East Bay Mun. Util. Dist.,
California
G.O.
Atlanta, Georgia
G.O.
OTHER
Fed. Nat. Mtg. Assoc.
1/
2/
J/

Deb.

13.7
34.0

1962-80
1961-80/70

-2..65
3.59

1.30-2.80 Aaa
1.70-3.70 A

30.0
12.7

1961-95/75
1960-86

3.30
3.15

1.5&-3.95 Aa
I.25-3.30 Aa

75.0

1971

4-1/8

4.10-

—

Includes corporate and other security offerings of #L5 million and over j 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.O. denotes general
obligationsj Rev.-Ut.,.yevenue obligations secured only by income from public
utilitiesj Rev.-Q.Ut., revenue bonds secured only by revenue from quasiutilitiesj Rev.-S.T., revenue bonds secured by revenue from specific taxes
only; Rev.-Rent., revenue bonds secured solely by lease payments.




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

Date of
computation

1959 - July 31
Aug. 31
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

During month following
date shown
State and
Other 2/
Corporate
local govt.
238
198
37 h
385
226
210
207
301
299
202
2*83
237
596
216

356
385
270
115
295
115
**
210
255
250
2W
277
180
275
283

25
. 70
30
15
*
35
30
30

Subsequent to
date shown
State and
Other 2/
Cozporate
local govt.
1*06
1*02
1*70
336
1*85
51*5
310
385
280
258
502
380
321*
283

305
517
69k
569
271
280
252
372
3hk
357
553
2*55
1,006
731

25
70
30
1*5
35
60
30

Forthcoming Large Offerings, as of September 2
Issuer

Type

Amount
Approximate date
(millions
of offering
of dollars)

CORPORATE
Virginia Electric & Power Co.
"'v-bli" Service Co. of Colorado
Utah lover & Light Co.
Public 5civice hiectrie and (las Co.
Pacific Power & Light Co.
- i e York Telephone Co.
uNw
-»Continental Can Co.
-:dr Diego Cas & Electric Co.
:-at
Columbia Gas System
Union Electric Co.
American Telephone and Telegraph Co.
Trustors' Corp. ^ ^
Comnerce Oil Ref ining Corp.
liberian Iron Ore, Ltd.
Natural Gas Pipeline of America
Natural Gas Pipeline of America




1st ref. mtg. bds.
Pfd. stk.
1st ntg. bds.
1st ref. mtg. bds.
1st mtg. bds.
Ref. mtg. bds
Deb.
1st mtg. bds.
Deb.
1st v t g bds.
v..
Deb.
Partic. certif.
Deb., bds. & com.
Bds. 6 stk.
1st mtg. bds.
Pfd. stk.

25.0

15.0

16.0
5o.o

20.0
60.0
30.0
30.0

30.0
50.0

250.0
ItO.O
45.0
30.0
25.0

15.0

Sept. lit
Sept. 15
Sept. 15
Sept. 21
Sept. 22
Sent. 29
Sept. 30
Oct. 5
Oct. 7
Oct. 19
Oct. 25
Indefinite
Indefinite
Indefinite
Indefinite
mdefini te

-13-

J-2
Forthcoming Large Offerings, as of September 2 (Cont'd)
Issuer

Type

Amount
Approximate date
(millions
of offering
of dollars)

STATE AND LOCAL GOVERNMENT
Alameda-Contra Costa Transit. Dist.,
California
Alabama Highway Authority
New York State Thruway Auth.
City & Co. of San Francisco,* Calif.
Pa. State Highway & Bridge Auth.
State of Ohio
Public Housing Authorities
•^Puerto Rico Aquaduct & Sewer Auth.
Milwaukee, Wisconsin
*State of Connecticut
Buffalo, New York
^Detroit, Michigan
^Detroit, Michigan School Dist.

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

16.5
15.0
50.0
21.5
10.0
31.0
1*8.9
10.0
10.8
35.4
12.3
11.2
10.0

Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.
Sept.

7
7
8
12
13
13

Ik

15
20
21
22
27
27

-

OTHER
None

-

*—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.




Exhibit %
Yields on New and Outstanding
Electric Power Bonds, Bated 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
11*
21
27
May 10
12
25
June 17
28
29
July 8
13

A-rated offering yields
Aa-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)
*4.93
4.83

87
-3

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

36
42
63

5.08
5.10
4.90 ? /
4.73^

44
46
32
17

4.85

33

4.94

17

*5.65
5.33

31
23

5.13^
*5.08
*5.30

123
-15

60
43

39

5.45 2 /
5.30^

51
28

5.00
4.93

11
7

50

5.10
5.20

26
33

4.95

11

39
32
:

4.82
4.84

21

5.30
4.95
4.88

4.98

25
27

4.93
4.88

11
8

*—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.




September 6, I960
-15Pairt II - Canada
Canadian bill yields continued to decline to new lows for the
year while the United States bill rates rose, resulting in a further increase in the incentive to hold the United States bill. The Canadian press
has attributed much of the decline in the Canadian bill rate to the increased
liquidity of the chartered banks and the anticipation of a new Government
guaranteed security (CNR) issue in the near future. Canadian bond yields
also declined to new lows for the year and the spread between comparable
Canadian and United States issues narrowed. During the week thqre was no
change in the Bank of Canada's holdings of Government securities while the
chartered banks bought $20 million and the general public sold $19 millione
Industrial stock prices declined sharply at the end of August but rose again
on September 1= While there was some decline in the Canadian dollar it
remained above 103 (UoS= cents).
Money market conditions. At last Thursday's auction, the average
yield on the 3-month Treasury bill again dropped sharply by 2U basis points
to 2„01 per cent per annum from 2.25 per cent a week ago (see Ta^le).
The yield has fallen by 90 basis points over the past 3 weeks ant% is at the
lowest point since September 11, 1958o The 6-month bill yield also declined sharply for the third week in succession to 202lt per cent per annum
from 2okh per cent last week. The chartered banks purchased $11 million of
Treasury bills and the Government account purchased $U million while the
general public sold $10 million.
The Canadian press has linked the recent decline in Canadian
Treasury bill yields with the increased liquidity of the banking system and
the expectation of a new Canadian Natipaal Railway bond issue in tjie near
futureo The liquid assets ratio of the chartered banks has increased from
l6»6 per cent on August 10 to 17*2 per cent on August 31o Over the past
month the Bank of Canada purchased $11 million net of Government securities
while the Government accounts purchased $79 million. It is also reported
that the Bank of Canada has withdrawn offerings of a number of outstanding
issues from the market0
The net incentive to hold the U=So short Treasury bill compared
with the Canadian bill increased to O.38 per cent per annum from 0 o 2b
per cent in the previous week. While the spread favoring the United States
bill widened, the premium on the forward Canadian dollar rose substantially
during the weeko
According to Wood, Gundy and Company Ltd*, rates on Canadian
commercial paper by leading Canadian acceptance houses decreased over the
last month. The rates on 3-month to 6-month paper declined to 2-3/L per
cent on Spetpember 1 compared with 3-1/2 per cent for most houses on
August 5 (see Table). The 60=day rate on prime Canadian commercial paper
declined to 3-1/8 per cent on September 1 compared with 3-lA per cent a
week ago at 3-5/8 per cent on August 5»




-16-

Bond market. The rate of decline of bond yields increased during
the week with falls of 25 to 30 basis points at the short end and 7 to 12
basis points in the longer maturities o The spreads between selected
" comparable Canadian and United States securities (Thursday yield for bills
and Wednesday yield for bonds) were as follows (figures in parentheses
refer to the previous week)s
-0,57 per
-O063 per
0.5U per
0,88 per
lo03 per

cent
cent
cent
cent
cent

on a 91-day bill (-0.2U)
on a 182-day bill ( - 0 . 3 5 )
on an 8-year bond (0,69)
on a 20-year bond (lo00)
on a 35-year bond (1,15)

The general public sold $9 million of bonds and $5 million of savings bonds
while the chartered banks purchased $9 million of bonds» There was no
change in the holdings of the Bank of Canada,
A $25 million Manitoba Hydro 21-year issue was placed on the
market during the week and immediately went to a one point premium. The
issue was priced at 97-1/2 to yield 5«U5 per cent with a 19-year noncall
feature.
Exchange rateo During the week, the Canadian dollar declined to
103,03 (U0S0 cents) on Thursday from 103,20 the week before (see Table),
The 3-month forward Canadian dollar closed the week at a premium of 0,19
per cent per annum.
In July there was a $1*6,7 million rise in Canada's official gold
and foreign exchange holdings, compared with an increase of $33,6 million
in June and a loss of $101 million in May,
Stock exchange. Industrial stock prices on the Canadian exchanges
fell sharply at the end of August but they showed some tendency to rise.
On September 1 there was a sharp rise in the Toronto index to the highest
since mid-February while Montreal prices showed moderate gains.
Toronto
January U
March 1
May 2
July 5
August 2
2U
26
29
30
31
September 1

532,58
U9U.71
U8U060
485.50
L75.06
501,81
5oU.HU
503.56
502.00
500.63
505.56

Montreal
318.9
290.6
280.9
272.0
259.3
27H.5
27U.3
273.3
271.0
270.3
271.1

British Commonwealth Section
Division of International Finanace
Federal Reserve System

Board of
 Governors of the


New York
Standard & Poor
6U.50
59.83
57.59
60.65
58,Hi
61,67
61,12
60.93
60.25
60.37
60.51

<\
Selected Canadian Money Market and Related Data

1959 - High
Low
1960 - High
Low

U.U9
2.80
Uo63
2.12

2.96
0,30
0.90
-0.69

102.21
102.28
102.27
101.31

2.2U
2.38
2.U9
2.28

siScOg

CJ CVJ CVJ CM

Aug. 11
18
25
31

6.16
3.25
2.1U
2.01

Canadian dollar
Spot
3—mo.
forward

-

II
1

3-mo. Treas. bills
Spread
Canada
u.sJz/ over U.S.

0.67
0.28
=0o2U
=0.27

103»31
103ol3
103.20
103.03

~

103.33
103.13
103.20
103.08

Net incentive to
hold Can,
biUSZ

0.31
-0.72

0.9U
-0.27

0.06

0.73
0.28
-0.2U
-O.38

0.19

a/ Average yield at weekly tender on Thursday,
Ty Composite market yield for the U.S. Treasury bill on Thursday close of business,
c/ In U.S. cents*
cy 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
Canada
vTl/
_ a L
1929 - High
Low
I960 - High
Low

6.211
2.11
2.33
2.2U

Aug. 10
17
2U
31

3.13
2.89
2 .a
2.2U

J
0/
0/
5/
y
g/
h/

Intermediate
bonds (8 yr.)
Spread
Canada
U?s?|/

=0.63

2.37
U.20
2.22
U.12

1.11
0.21

0.28
0.17
-0.32
-O063

U.2U
U.U2
U.22
U.12

0.96
0.82
0.69
0.2U

Long-term bonds
(20 :
year)
(35 year)
Spread
Spread
Canada
over
Canada
U.Sj/
uTi/

.

2.30
U.UU
2.U2
U.62

1.22
0.87

2.02
U.73
2.28
Uc72

1.61
0.98

U.89
U.87
U.77
U.62

1.1U
1.09
1.00
0.88

U.90
U.86
U083
U.72

1.29
1.20
1.12
1.03

Average yield at weekly tender on Thursday.
—
—
Spread between Canadian auction rate and composite market yield of U.S.
on close of business Thursday.
Government of Canada 2-3/U per cent of June 1967-68.
Spread over U.S. Government 2-1/2 per cent of 1 9 6 3 - 6 8 .
Government of Canada 3-lA per cent of October 1979#
Spread over U.S. Government 3-lA per cent of 1978-83.
Government of Canada 3-3A per cent of September 1996 - March 1998.
Spread over U.S. Government of 199$.




-18-

Canada: Changes In Distribution of Holdings of Canadian
Government Direct and Guaranteed Seourities
(millions of Canadian dollars, par value;
Bank of Canada
Treas.
bills
Bonds
June 30
July 7
1k
21
28
AUge U

11
18
22
31

f
+
+
-

+
+
•
+
+
+
+

5
18
2
15
18
3
12
3
6
0

Government
Total

5
U8
12
5
13
11
5

17
1
. 0

0
+ 13
- 2
+ 13
+ 25
+ 57
- +

+
•
+

Chartered banks
Treas.
bills
Bonds
+
+
+
+
+
+

- U6
+ 21
- 2k
- u
+

2
1
k

u

+
+
+

15

12
8
21
2k
11

11
27
6
U
3
3U
1
10
2
9

General public
savings Treas.
Bonds
bonds S S L
.
-

5

-

5
5

-

$

-

7
5
2
6
6

6

+
+
+
-

Uo
U9
2k
k
37

+
-

11
19
1k
10

0

-

17
25
15
U
10
35
9
23
U
9

Source: Bank of Canada, Weekly Financial Statistics*

Rates on 3°MQnth to 6=month Canadian Commercial Paper
(per cent per annum)

=

Aug^J
Canadian Acceptance Corp.
Continental Guarantee Corp.
United Dominions
Imperial Investments
Industrial Acceptance Corp.
Pacific Finance Corp.
Traders Finance Corp.
Union Acceptance Corp.

3-1/2
3-1/2
3-lA
3-1/2
3-1/2
3-1/2
3-1/2
3-1/2

Aug. 12

Aug. 19

3-1/2
3-1/2
3*3A
3-1/2
3-V2
3-1/2
3-1/2
3-1/2

3-lA
3-lA
3-1/2
3-1/li
3-lA
3-lA
3-lA
3-lA

Aug.

Sept. 1?.

3
3
3
3
3
3
3
3

2-3A";
2-3AV)
ii
'

Sources

Woods Gundy and




"XtdV,

CANADA - UNITED
THREE-MONTH

GOVERNMENT

LONG

TERM

TREASURY

INTERMEDIATE

GOVERNMENT

BILL

TERM

BOND

BOND

YIELDS

YIELDS

(20

'

15
97




15
91

STATES

RATES

(8

YEARS)

YEARS)

UNITED STATES

15
91

19*0

September 6, I960
Appendix 1
United Kingdoms

Money and Capital Markets During August

A continuing inflow of capital from abroad, an outgrowth of the
level of British interest rates and of restrictions against entry into
Germany and Switzerland, dominated money and capital markets in Britain
during August«, As a result, Britain's foreign exchange reserves increased
by $75 »6 million during August or $ll;S>o6 million if special capital transactions are excluded; this accrual has occurred at the time when seasonal
pressures on the pound (especially in payments to Europe and North America)
are normally at a peak and when Britain's foreign trade has been seriously
in deficito
All major financial markets were affected by the inflow. In the
foreign exchange market, the inflow kept the pound fractionally above $2„8l
against the UoSo dollarj blocked security sterling was also above $2 0 8l o
Zh the stock market, rising reserves and the capital inflow contributed to
a marked rise in the prices of industrial stocks; on August 26, the industrial stock index was close to the all-time high reached in January i960.
In the bond market, however, these factors produced only a slight easing
in bond yields during August and Treasury bill rates were unaffected by
the inflowo .
Outside financial markets, a noteworthy development was the sharp
fall in bank loans between mid-July and mid-August reported by the London
clearing banks which is the first evidence that the credit squeeze is having
resuitso This is the first month-to-month decline in bank loans since
the lifting of restrictions on bank lending 2k months agoc During August,
interest rates outside capital markets continued to rise.
Money market conditions0 Despite the inflow of foreign funds,
money market rates were stable throughout Augusta The rate on the 3-month
bill was virtually unchanged at $ 0 $7 - 5„i>9 per cent (see Table)„ During
the second half of the month, the discount houses were able to increase
their proportion of the weekly bill tender in the face of foreign competition,
as may be seen in the following data on the syndicate8 s weekly allotment
(per cent of tender offering) and the average bill yield (in per cent per
annum):
Syndicate8 s
allotment
July 15
22
29
August 5
12
19
26




67
U3
39
UO
50
U8

Treasury
bill yield
5o k9
£.f>8
5o57
5o59
5o59

Although the incentive narrowed in the latter part of August# the
net incentive to hold the London bill against the New York bill exceeded
1*00 per cent throughout the month (see Table). The narrowing of the
spread in favor of the London bill chiefly reflected the sizable rise in
U.S. bill rates in late August (see Table)„ It is noteworthy that, despite
the volume of covered funds moving into London, the discount on the forward
pound did not materially widen during the month.
Gilt-edged marketo There was only a slight easing in gilt-edged
yields during the month. Short bonds were "down
7 to 8 b*sis points
and Consols down 11 basis points (see Table).
Gilt-edged conditions inproved particularly during the latter
part of the month (see Table)* For example* underwriters of 813.9 million
Australian 6 per cent 1977=80 bond were required to take 52 per cent when
offered in late July; later a brisk market developed and the price rose
from £98 to £99-1/2 by late August. The Australian issue showed a yield
0.33 per cent above the highest running yield on British Government securities
(the 5 per cent Treasury bond 1986-89 with a $.83 per cent yi^ld). A
Surrey County Council issue of £12 million 6 per cent 1978-80 bond priced
at 99 was offered on August 31 showed a gross yield of 6.06 per cent.
In the corporate sector, there have been a series of disappointments on new issues of industrial debentures. In part, these difficulties
have reflected the lag in corporate bond yields in the face of rising
Treasury bond yields. Between early January (i960) and mid-Juips, corporate
bond yields rose only between 31 and 39 basis points; by contrast yields
in Treasury bonds rose between Wi and 1 9 basis points. Since pid-June, how*
ever, there has been an accelerated rise in yields on corporate debentures,
as may be seen in the following statistics on bond yields in per cent per annum:
Comparative Redemption Yields on Debentures and Loans
i960
early Jain.

;J,960
mid-June

/ I960
aiding.

Jan. to

June to
Aug.

British Betroleum
197U-78
ICI U-l/2/C, 1972-71
Imperial Tobacco h%s 1975-85
Tickers 6%, 1977-80

5*51
$068
$.53
5»55

5-85
6.05
5-8U
5o9U

6.18
6.27
6.12
6.18

0.3U
0.37
0.31
0.39

0.33
0.22
0.28
0.2k

Treasury 3-1/2%, 1979-81
Treasury 5%, 1986-89

5o32
$o29

5,81
5.73

6.02
6.03

0.U9
o.a

0.21
0.30

Honmarket interest rates „ For the second
the rates of the Local Loan Fund have been raised.
in rates have been:
1960
I960
Aug. 20
July 16
Up to 5 years
6-1/L
6-l/lt
Between 5 and 15 yrs.
6-l/U
6-l/U

^

1

A

^

30 7ta

'




t\%

h

/ 8

time in thq past month
The most recent movements
I960
Jan. 30
$-1/2
6
5-7/6

1$$9
Mar. 28
5
5-3A

-22-

The Times^ City Editor comments that long-term rates in the local authority
mortgage market (in relation to comparable Government securities) are not
high enough to be attractive to investors; but they are already high enough
to discourage long-term borrowing by the local authorities0
Many nonraarket borrowing and lending rates of banks, finance
houses, building societies s and post office and trustee savings banks have
increased generally since the June 23 Bank rate increase as noted in the
following table (figures in parentheses refer to old rates)s
Interest Rates
(per' cent)
For borrowerss
Bank overdrafts
Personal loans
Term business loans
Term farm loans
Building society mortgages

7 - 7& (6 - 6&)
5 (unchanged)
7 (6)
6 (unchanged)

For lendersg
Bank deposits
Finance house deposits
Building Society deposits
Building Society shares
Po0„ and Trustee Savings Bank Deposits

U (3)
6 upwards (5 upwards)
3 (unchanged)
3k (unchanged)
2§ free of income tax on first
£15 of interest (unchanged)

For hire-purchase (new and old maximum rates) New
New vehicles
T
Second-hand vehicles
Up to 5 years —
10
Over 5 years
12
Motorcycles
12
(most finance houses operate below maximum rates)

Old
T3/2
8-1/2
10-1/2
10-1/2

Bank advances o Advances of the clearing banks fell by £1*5 million
as revealed in their mid-August statement» This is the first fall in over
two years since the end of the credit squeeze in August 1958 < From
>
August l?58s to July 19609 advances increased by £19U10 million0 The
pattern over the past four months is given in the following tables
Month en
mid=June
mid-July
mid-August

*
+
+
-

£26 million
£3 million
£99 million
£Wi million

Foreign exchange o During August spot sterling continued to rise
reaching its high for theyear of 28le17 on August 12 and subsequently
easing to 28lo10 by the end of the month (see Table)0




-23Security sterling strengthened through the month from 280.06
U.S. cents on August 1 to 281.13 U.S. cents on August 29$ its highest point
since May 18s 1959= The discount on 3=%month sterling fell frop 2.2lt per
cent on July 22 to 1.8U on August 5 and then rose to 2.12 per cent on
August 26 (see Table).
The failure of the discount of the forward pound to widen
sufficiently to materially reduce the incentive to move funds ^o London
on a covered basis continues to be a noteworthy aspect of recent foreign
exchange developments in London. In the past, relatively limited movements
of funds have been brought to an end as forward rates widened. This process
was described in the hearings of the Radcliffe Committee in these words:
Mr. Parsons. The point we always have to bear in mind is that
when money comes here on interest rates considerations the
majority of it . . . is in fact covered forward for the exchange
risk, which costs something. The more money that comes in,
the more expensive that cover tends to become. There is therefore a tendency towards an equilibrium position all the ti^e.
Unless there is something to prevent that equilibrium
happening, the cost of "over would equal the difference between
interest rates very quickly, so that this is not normally a
very large and important factor in our total reserve position0

*

Given the known volume of funds moving into London, especially
since June, the tendency for the discount on forward sterling tq be
narrower during the past month than it was on July 22 indicates unusual
demands for forward pounds in the market. One source of offerings may
have been foreign exchange banks and traders in the London market who might
find it attractive to offer against U.S. dollars forward at the discount
on forward pounds being quoted in the market. Some part of the fnflov may
also have come in on an uncovered basis.
Since June when the inflow into London commenced, the pates London
banks have offered for 3~»onth U.S. dollar deposits have drifted downward,
as may be seen in the following rates offered for U.S. dollar deposits
in principal European centers s
London
Paris
Rome
May 27
June 2U
July 29
August 5
12
19
26

U-l/16
u
3-5/8
>11/16
3-3/u
3-3A
3-9/16

U=l/l6
3-15/16
3=5/8
3-11/16
3-5/8
3-9/16
3-9/16

U
#
3-13/]
3-5/8
3-5/8
3-3/U
3-5/8
3-1/2

British statistics show that foreign holdings of sterling rose by
£96 million between April and June. The rise was largely in holdings by
North American and European residents s European holdings rose by £81
million and North American by £33 million during this period. Because the
statistics end with June 30, they do not include the substantial Inflows
which occurred during July and August.




-2U-

'

Stock market. The favorable foreign reserve developments and
the inflow of foreign funds contributed to a rapid rise in prices in
industrial stocks in London during the month. On August 2$, the industrial
stock index stood at 33U.U compared with 307.0 on July 29 and with the alltime high of 3U2.9 on January Us i960 (see Table). Foreigners interest
in British stocks is reflected in the rime in the exchange rate on blocked
Security sterling to virtual parity with the convertible spot pound.

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




United Kingdom; Treasury Bill Yields and Exchange Rates
Net
Discount
incentive
Differon 3-mo, . to hold ,/
U.K. bill^Z
U.K.S/ UoSo^/ ence
sterlingS/
3-mo

Date

-25-

Exchange rate
Discount
on 3-dmo*,
sterling!/

sterling

1959 - High
Low
I960 - High
Low

3.6
3.0
5.68
2,13

U.7
2,6
U.59
2,05

4,1
o,U
3O63
-0,81

(P) ,6U
2.2k

1.95
- .23

281.17
279.83

1.57
(P).U7

July 22
29
August 5
12
19
26

5.U9
5.55
5.58
5.57
5.59
5.59

2,35
2,19
2,13
2,15
2.U0
2,1*6

3.1k
3.36
3olt7
3.U2
3.19
3.13

2,2U
1.97
1.8U
1.93
1.95
2.12

0,90
1.39
1.63
1.U9
1,2k
1.01

280.88
280.89
280.90
281.17
281.13
281.10

1.57
1.38
1.29
1.36
1.37
1.U9

a/
5/
%J
a/
e/
7/

Average yield at Friday weekly tender0
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. cents,
Spread between spot and forward rates in U,S» cents.

United Kingdoms

Selected Capital Market Yields
Consols

6-year
bondy

l5«year
bonder

War
loang/

I960 p. High
Low

6.0U
k.93

6,00
5.33

5.90
5.53

5.69
5.03

k.k9
3.7U

1.U9
0.76

33U.U
297

July 22
29
August 5
12
19
26

5.98
6,03
6,0k
5.97
5.96
5.97

5.96
5.99
6,00
6,00
5.97
5.9k

5.87
5.89
5.89
5.90
5.90
5.89

5.65
5.66
5.65
5.65
5.63
5.5k

kohl
U.U9
k.kO
U.22
ho2k
U.18

1.2U
1.17
1.25
1.U3
1.39
1.36

315.5
307.0
313.0

a/
%J
c/
&/
e/
i/
g/

y

Share ,
yieldS/

5-1/2 per cent Exchequer!
'
3 per cent Savings Bond 1965-75.
3-1/2 per cent "War Loan (undated),
2-1/2 per cent Consol (undated)•
Financial Times,
Difference between yield on 2-1/2 per cent Consols and share yield,
Financial Times,




32U.0


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102