Full text of H.16 Capital Market Developments : September 6, 1960
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Not for Publication DECONTROLLED AFTER SIX MONTHS September 6 , i 9 6 0 .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 MU . S . 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. m mSMi (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 MARKET YIEIDSA/I 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 - High 3,1*01 60.51 (7/31/59) 3.07 1*.3 (12/27/57) 1.66 1.1* 3,551. 2,W2 1,373 1,060 (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 (3/11) lt,76U to "others" 5 / d o ]L i a r s ) 39.78 5k.2h July loans 59.50 - High Low Bank debit bal- shares) 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 1960 - July Purchases by VHVA commitment of dollars) 92.5 17.1 62.3 .3 123.1 109.9 13.3 .3 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. 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 98.5 93.8 June 100.2 9l*.0 July 88.0 82.9 May by 109.5 *U£. Sept., Feb. Sales Il'NMA 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 728 736 623 575 577 712 860 821 738 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 State and local 2/ 1 1958 1 1959 551 fi/970 e/550 e/600 .e/600 639 858 6L6 812 953 511 932 593 1,006 798 895 551 1 I l,93k E/2,2k9 E/k,l83.' 806 k03 651 k56 k7k k35 f:iS i,57i 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 Year 1/ 2/ 3/ h/ 1,999 2,kl2 1,716 2,503 2,899 2,586 2,731 2,213 87630 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 21/ I960 I960 | 1959 1959 1 1958 1 1958 January February March April May June 175 70 33 72 4o July August September October November December Year - 81 60 2 196 53 - 58 50 42 139 198 120 11*8 354 85 1 35, 9 5 17 __ 182 150 150 — 199 1,163 251 175 523 — — 164 98 150 — 220 33 30 70 58 123 74 66 547 992 707 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 | S.F. deb. Republic Steel Corp. j 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 1*1*5 210 255 250 2W 277 180 275 283 25 . 70 30 1*5 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. -uiNew York Telephone Co. -»Continental Can Co. -::-dart Diego Cas & Electric Co. 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 vvt.g. bds. 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 31 23 5.13^ *5.08 *5.30 36 42 63 5.08 5.10 4.90 ? / 4.73^ 44 46 32 17 4.85 33 4.94 39 4.95 4.88 5.65 ( 9/18/59) 3.00 (3/17/54) 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 : 4.82 4.84 123 -15 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 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. 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 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 15 2 1 k + u + + + 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) i'i Sources Woods Gundy and "XtdV, CANADA - UNITED THREE-MONTH GOVERNMENT LONG TERM TREASURY INTERMEDIATE GOVERNMENT BILL TERM BOND BOND YIELDS YIELDS (20 ' 1957 1951 STATES RATES (8 YEARS) YEARS) UNITED STATES 1951 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, however, 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