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Treasury-Federal Reserve Study of
the U . S. Government Securities Market

INSTITUTIONAL INVESTORS AND THE U . S . GOVERNMENT SECURITIES MARKET




THE
FEDERAL
RESERVE
RANK of
SE LOUIS

Research Library

Staff study prepared b y
Joseph Scherer
Economist
Federal Reserve Bank of New York
March 3 0 , 1967

2

I.

Introduction and Summary

This paper explores the behavior of institutional investors in
the Government securities market and their views as to how this market
functioned in the period 1955-65.

The analysis is based on the replies of

about 400 institutional investors to a mail questionnaire.
questionnaire is appended.)

(A copy of the

Although the questionnaire concentrated on

the period 1961-65, for purposes of comparison respondents also were asked
to provide information for the period 1955-60.
The analysis is divided into the following three sections:
A.

Institutional investors and the market for U . S . Government
securities.

The behavior of institutional investors in the

Government securities market and the views of institutional
investors on how the market functioned, including an evaluation of dealer performance during 1955-65.
B.

Institutional investors and advance refundings.

H o w , and

the extent to w h i c h , institutional investors participated
in advance refundings held by the U . S. Treasury and their
views as to how these debt operations affected their investment activities.
C.

Institutional investors and official operations in coupon
securities.

The impact of U . S . Treasury and Federal Reserve

market transactions in outstanding coupon issues on the
investment activities of institutional investors.
In addition an Appendix is included, which provides (1) a description of the survey characteristics and limitations of the data; and (2)
detailed tables of the results, including the statistical significance of
the replies.



3
The survey revealed general satisfaction by institutional investors
in the Government securities market with the performance of the market despite
some reservations about particular aspects of the market's performance.
The questionnaire also uncovered wide areas of stability in market behavior
between 1955-60 and 1961-65.

At the same time, however, intermixed with

the strong elements of stability, the survey registered significant shifts
in the behavior of various market participants.

A brief summary of the

more important findings follows:
(1)

About two-thirds of the respondents transacted all their

business in Government securities with primary dealers.

The remainder of

the respondents mainly split their business between primary dealers and
commercial banks other than dealer banks, although a sizable group, 12 per
cent of the respondents, transacted all their business with this latter
group.
(2)

Most institutional investors (approximately 70 per cent)

who traded with primary dealers did business with 3 or more dealers and
this was true for all maturity sectors.

The most significant trend in

this aspect of market behavior was the increase, from approximately 10 to
14 per cent, in the number of respondents trading with more than 10 dealers.
These investors were the dominant group in the market on the customers'
side*

Although the investors who traded with more than 10 dealers repre-

sented only 14 per cent of the respondents in 1965, they accounted for
62 per cent of the activity and 38 per cent of the holdings in Treasury
bill issues reported by the respondents.

Similar percentages characterized

the coupon area.
(3)

In terms of the relationship between number of dealers used

and the average size of investor (as measured by the respondents' holdings




4
of Government securities at the end of 1965, market activity in outstanding
Government securities during 1965, and asset size):

investors trading with

over 10 dealers, on average, tended to be from two to three times larger
than those who used 6 to 10 dealers, who in turn tended to be about twice
as large as those who used 3 to 5 dealers.

These data suggest that the

large investors shop around when they are buying and selling Government
securities, thus helping to make the market competitive.
(4)

Price was the most important factor, by far, in determining

the dealer selected by an investor for transactions.

The category "primary

dealer's bid or offer prices in past transactions tended to be best quotation
was checked by 311 respondents as one of the more important factors and
about 190 respondents (more than half of those answering the question)
indicated that it was the most important factor in all maturity sectors.
The second in number of votes was "other banking or financial business
with the primary dealer or bank" which was checked by 173 respondents as
of considerable importance and selected as the most important factor by
some 40 to 70 respondents for the different maturity sectors.

Third in

order of number of votes was the factor "size of the transaction that a
primary dealer was willing to undertake on quoted markets" which was rated
as the most important factor by about 10 per cent of the respondents.
Other factors which ranked high as matters of considerable importance,
although relatively unimportant as a "most important factor", were the
speed at which the primary dealer completed a transaction, the importance
of the dealer as a source of investment counsel, and the initiative of the
dealer in contacting the investor.

The over-riding importance of price

to the institutional investor, coupled with the tendency of institutional
investors to transact business with a relatively large number of dealers,
adds weight to the hypothesis that the market is competitive.



11

5
(5)

The size of transaction that a primary dealer is willing to

undertake is often viewed as one measure of the efficiency of the Government securities market.

While from 60 to 75 per cent of the respondents,

depending on the maturity sector involved, said that there had been no
change in the sixties as compared to 1955-60 in the size of transactions
that dealers were willing to undertake as principals, for an important
segment of the market this aspect of dealer performance had deteriorated
between mid-1965 and the survey date (mid-1966) in all maturity sectors of
the market.

Moreover, there apparently was a modest decline in the size

of transaction that dealers were willing to undertake during the earlier
'sixties in the coupon area of the market for the larger investors in the
survey.
(6)

Despite some deterioration of the market in terms of trans-

action size, almost all investors reported that competitiveness among the
dealers had remained unchanged or had increased during the 'sixties as
compared to 1955-60.

Only 6 per cent of the respondents reported any

decline in the competitiveness of dealers in the 'sixties relative to the
period 1955-60.
(7)

A number of factors contributed to the need for Government

securities dealers to maintain, if not to increase, their market agressiveness in the 'sixties.

One major factor is indicated by the substantial

number of institutional investors who reported an increase in their use
of instruments which could serve as substitutes, in whole or in part, to
Government securities.
(8)

Almost 60 per cent of the institutional investors in the

survey participated in advance refunding operations.

Moreover, these

investors were the larger investors so that they accounted for 85 per cent



6
of the market activity during 1965 of the survey group and 72 per cent of
the holdings of Government securities.

The exchange of rights was the most

popular form of participation in the advance refundings and more than half
of these institutions exchanged rights in four or more (out of a possible
eleven) refundings.

Next in order of popularity came selling rights,

purchase of when-issued securities, purchase of rights, and selling whenissued securities.
(9)

Sixty-five per cent of the respondents reported that advance

refundings did not affect their activity in the market for outstanding
issues, 21 per cent reported that their market activity actually increased
because of advance refunding operations, while 14 per cent said that their
activity in outstanding issues decreased.

When these percentages are

translated into the amount of market activity or holdings of the respondents
in the increase v s . the decrease group, it appears that advance refundings
may have increased market activity in Government securities to a modest
extent during the period 1960-65.
(10)

Almost all institutional investors in the survey held

favorable attitudes toward advance refundings or at least were neutral.
Less than 4 per cent of the respondents reported an unfavorable view of
advance refundings; these respondents accounted for about 4 per cent of
the holdings of the survey group and about 8 per cent of the activity
during 1965.
(11)

Federal Reserve and Treasury operations in the coupon area

influenced only 31 per cent of the respondents in their investment activities.
These institutions, however, were (on average) larger than those who reported that they were not influenced and there is some evidence to suggest
that they were among the more sophisticated investors.



Some institutional

7
investors tended to increase their market activity because of official
operations, but these investors accounted for a smaller amount of market
activity or holdings of Government securities than those investors whose
activity tended to decrease because of official operations.

It appears,

therefore, that official activity in the coupon area may have reduced
market activity somewhat.

The influence of official activity on institu-

tional investors' expectations about interest rates appears to have been
relatively short for most respondents, although investors accounting for
some 20 per cent of holdings and activity indicated that their expectations
tended to be influenced over a period of several months.




8

II.

Institutional Investors and the Market for Outstanding
U . S . Government Securities

This section explores the institutional investors

1

views on how

the Government securities market functioned during the first half of the
1960's, w i t h , at times, a retrospective view of the 1955-60 period.

The

investigation included such factors as the type of dealer organizations
used by investors to carry out their transactions in Government securities,
how many dealers an institutional investor typically u s e d , and what dealer
characteristics were most important for the institutional investor.
Particular attention was given to the size of transactions that the dealers
were willing to undertake in various maturity sectors.

A-

Type of Dealer Chosen by Institutional Investors for Transactions in
Government Securities
In 1965, as in 1961, outright market transactions in U . S .

Government securities by institutional investors were heavily concentrated
in the primary dealers in such securities."'"

In both y e a r s , about two-thirds

(some 250) of the respondents conducted all their outright transactions
with primary dealers (see Table I ) .

Another 12 per cent (or about 4 5 )

of the respondents in 1965 transacted all their business in Government
securities with banks (other than banks which were primary dealers),
approximately the same percentage as in 1961.

M o s t of the remaining re-

spondents divided their business between primary dealers and banks (other
than dealer banks); only a very small percentage of the respondents
channeled any business in Government securities to other types of firms.

^ For the purposes of this study, a primary dealer in U . S .
Government securities was defined as a dealer that makes primary markets
in obligations of the United States and reports its activities regularly
to the Federal Reserve Bank of N e w York . A list of such dealers was
included with the questionnaire sent to each respondent.



9

Table I
Type of Dealer Used by Institutional Investors to
Trade in U , S , Government Securities*
Comparison Between 1961 and 1965

Number of
respondents
1961
1965
Primary dealers only

Percentage
distributiont
1961
1965

249

247

66

65

50

46

13

12

Other security firms only

3

0

1

0

Combination of primary
dealers and other banks

45

55

12

15

Combination of primary dealers
and other securities firms

9

7

2

2

Combination of other banks
and other securities firms

4

3

1

1

Combination of primary dealers,
other b a n k s , and other
securities firms

7

7

2

2

Combination of primary dealers
and direct transactions

2

4

1

1

Combination of primary dealers,
other b a n k s , other securities
firms, and direct transactions

3

4

1

1

Combination of primary dealers,
other b a n k s , and direct
transactions

3

3

1

1

375

376

100

100

Other banks only#

Total

*

Question 7 .

#

"Other banks" refers to commercial banks other than those with a primary
dealer function.

f

Details m a y not add to totals because of rounding.




10
Investors transacting all their business with primary dealers were
larger, on average by some 60 per cent or m o r e , than those investors transacting all their business with commercial banks other than dealer banks
(see Table A-l)."'"

This preference for primary dealers by the larger

investor remained stable during the

1

sixties in the sense that the size

averages for 1965 were similar to those for 1961.
Average size of investor for this study was computed in three ways:
1.

Holdings of U . S . Government securities:

size as indicated

by the amount of Government securities held by the investor as of
December 31, 1965.
2.

Such averages will be referred to as holdings.

Market activity in U . S. Government securities:

size as

indicated by amount of market activity in outstanding Government
securities (i.e., purchases and sales) by the respondent during the
year 1965.
3.

Such averages will be referred to as market activity.

Assets:

size as indicated by total assets as of, or state-

ment date closest to, December 31, 1965.

Such averages will be

3
referred to as assets.
The size averages, however, do not fully suggest the relative
importance of the primary dealer in the Government securities market.

The

size of total dollar holdings of Government securities and the total dollar
market activity in Government securities during 1965 for those institutional
All tables with identification numbers prefixed by the letter
"A" are in the appendix.
2

The data for these size criteria were provided by each respondent.
See appendix for a further discussion of the size criteria.
3
Categorizing some respondents, particularly State and local
governments, by asset size was not possible. Thus, their responses are not
reflected in this average.




11
investors doing business with primary dealers as compared to those using
other types of dealers suggests that at least two-thirds and possibly as
much as 85 per cent of the transactions in Government securities have been
transacted through the primary dealers.

B•

Number of Primary Dealers Used
The number of dealers with whom institutional investors transacted

their business in U . S. Government securities remained quite stable in the
first half of the 1960's.

The most notable trend, comparing 1965 with 1961,

is the increase in the percentage of respondents who dealt with more than
10 dealers.

Although there are some variations by maturity sectors in

both years, roughly 70 per cent of the respondents doing business with
primary dealers traded with three or more dealers in all maturity sectors.
As noted in Table II, approximately one-third of all respondents traded
with 3 to 5 dealers in almost all maturity sectors, making this the
modal group (the largest single group) of dealers used by investors.
Table II
Number of Primary Dealers in U . S. Government Securities with
Which Institutional Investors Trade, by Selected Types of Securities*
(Percentage distribution of responses)
Number
of dealers

Bills

Coupon issues
under 5 years
1961
1965

Coupon issues
over 5 years
1961
1965

1961

1965

1

15

18

14

15

15

15

2

13

11

14

10

13

15

3-5

34

30

36

36

40

36

6-10

27

28

27

26

24

23

More than 10

11

14

9

14

7

12

100

100

100

100

100

100

Total
*

Question 8

 Note:


Details may not add to totals because of rounding.

12
Not far behind in relative importance, more than one-fourth of the institutional investors transacted their business with 6 to 10 dealers.

These

data suggest that most investors, and in particular the larger investors
as noted below, shop around when they are buying or selling Government
securities, thus helping to make the market competitive.
The number of primary dealers with whom institutional investors
transacted their business was directly related to the size of the institutional investor, with only minor exceptions.

Moreover, this relationship

held for both 1961 and 1965, indicating yet another stable aspect of the
way the Government securities market has functioned over the period
covered by this survey.

Broadly summarizing the relationship between

number of dealers used and average size of investor, as measured by
holdings, market activity, and asset size:

investors using over 10 dealers,

on average, tended to be from two to three times larger than those who
used 6 to 10 dealers, who in turn tended to be about twice as large as
those who used 3 to 5 dealers.

For investors trading with less than three

dealers, the size pattern is somewhat irregular but they are almost always
smaller, on average, than investors doing business with 3 to 5 dealers
(see Table A-2).
Consistent with the finding that larger investors tended to trade
with a larger number of dealers, market activity and holdings, as reported
by the survey respondents, were heavily concentrated among those who used
more than 10 d e a l e r s — a fact which adds significance to the increase, noted
earlier, in the percentage of respondents who trade with over 10 dealers.
While this group represented only 14 per cent of the respondents, in 1965
they accounted for 62 per cent of the market activity reported by all
respondents and 38 per cent of the holdings in Treasury bill issues held
by all respondents.



The percentages were similar for the coupon issues.

Chart I

RELATIONSHIP BETWEEN AVERAGE SIZE OF INSTITUTIONAL INVESTORS AND NUMBER
OF PRIMARY DEALERS USED FOR TRANSACTIONS IN U. S TREASURY BILLS, 1965
NUMBER OF PRIMARY DEALERS
Average of total holdings of
U. S. Government securities as of 12/65
Average of total activity in
U. S. Government securities during 1965

3-5

6-10

Over 10




1321.8

mtM>'11'UfHt"Tm»MMIHIIIIIHHItlHIIIIIHIi
_L

50

100

150

200
250
Millions of dollars

300

350

400

Institutional investors, who used 6 to 10 dealers, represented 26 per cent
of the respondents and accounted for 25 per cent of the activity and 33 per
cent of the holdings.

Thus, these two groups together, which represented

40 per cent of the institutions trading with primary dealers, accounted
for more than 70 per cent of the holdings and almost 90 per cent of the
market activity.

C•

Factors Determining Selection of Dealer
Price — the primary dealer's bid or offer p r i c e — w a s by far the

most important single factor determining which dealer was selected for
transactions in Government securities by an investor.

The price factor

was not only checked as of considerable importance by the largest number
of investors (316 respondents) but it was also checked as the most important
single factor by about 54 per cent of those who answered the question
(see Table III).

Second in terms of the number of votes, both in ranking

as of considerable importance and as most important, was "other banking
or financial business with primary dealer or bank"; it was rated as the
most important factor by slightly less than 20 per cent of the respondents.
Third in order of number of votes was the factor "size of the transaction
that a primary dealer was willing to undertake on quoted markets" which
was rated as the most important factor by about 10 per cent of the respondents
Other factors which ranked high as matters of "considerable"

importance,

although relatively unimportant as a "most important factor", were the
speed at which the primary dealer completed a transaction, the importance
of the dealer as a source of investment counsel, and the initiative of the
dealer in contacting the investor.

It is interesting to note, as shown in

Table III, that the order of importance of the various factors is about the
same for all maturity sectors.



Table III
Factors Determining Selection of Primary Dealer by
Institutional Investor for his Business in Government Securities*

Factors

Ranking by number of "Votes"
Most important
Coupons
Coupons
Considerable
under
over
importance
Bills
5 years#
5 years

"Votes"
(Number of times
checked as of
considerable
importance)

"Votes"
(Number of times checked as
the most important factor)
Coupons
Coupons
under
over
Bills
5 years
5 years

a. Other banking or financial
business with primary
dealer or bank

178

68

46

37

b . Size of transaction primary
dealer will usually undertake on quoted markets

167

35

33

38

c . Primary dealer's bid or offer
prices in past transactions
tended to be best quotation

311

187

198

184

d. Importance of primary dealer
as source of investment
counsel

153

18

30

23

e . Importance of primary dealer
as outlet for funds through
repurchase agreements

62

f. Speed at which primary dealer
completes transactions

5

5

5

150

16

6

8

g . Primary dealer contacts you

6

5

6

117

8

6

6

h . Primary dealer also provides
trading facilities in a broad
range of obligations other
than Government securities

7

9

8

7

98

1

3

3

i. Miscellaneous

9

8

7

8

8

4

4

2

*
#

Questions 10 and 11.
Two factors receiving the same number of "votes" are ranked by the same number.
number is skipped in the numerical l i s t i n g ^




In such cases, the next higher

Chart II

FACTORS DETERMINING SELECTION OF PRIMARY DEALERS IN U. S. GOVERNMENT SECURITIES
BY INSTITUTIONAL INVESTORS
FACTOR
Availability ot repurchase agreements

Makes market in other securities

Primary dealer contacts investors

Speed in executing transaction

Investment counsel

Size of transaction

Other financial business with dealer

Quotes best price




_L

50

100

150
200
Number of responses

250

300

15
The heavy stress on the factors of price, size of transaction, and
speed at which a transaction is completed, coupled with the tendency of
institutional investors to conduct their Government securities business
with a relatively large number of dealers, adds further weight to the
hypothesis that the market is highly competitive.

Such customer behavior

fosters competition by dealers for the available business.
There are, however, factors which suggest that there may be some
segments of the market in which the competitive aspect is less strong because
of offsetting considerations.

For example, the factor "other banking or

financial business with primary dealer or bank" was rated second, both as
a factor of considerable importance and as one which is most important.
However, while this factor may provide a partial shelter for a particular
dealer for some portion of the business he transacts, it is unlikely to be
much of an influence on overall market competition because the average size
of the respondents selecting this factor as most important was appreciably
smaller than those who selected the other factors which received a greater
number of "votes" (see Table A-3).
D.

Transaction Size
The size of transaction that a primary dealer is willing to

undertake is widely viewed as an important measure of the efficiency of
the Government securities market.

Transaction size is likely to be a

particularly significant concern for the large investor who may wish to
buy or sell in volume a specific issue with little delay.

In order to

explore this aspect of market operation, respondents were asked to indicate
whether the willingness of dealers to make transactions in each maturity
sector (bills, coupon issues under 5 years, and coupon issues over 5 years)




16
had remained the same, had increased or had decreased during the 'sixties
as compared to 1955-60.

In addition, since market uncertainties loomed

much larger after mid-1965 as compared to the earlier 'sixties, respondents
were asked whether any changes had occurred after mid-1965.

As in other

aspects of market functioning, the answers tended to differ by maturity sector.
The bulk of the i n v e s t o r s — f r o m about 60 per cent to 75 per cent,
depending on the maturity sector—reported that the size of transactions
that primary dealers were willing to undertake as principals in the first
half of the 'sixties, including the period after mid-1965, was about the
same as in 1955-60 (see Table IV).

The largest percentage, 74 per cent,

reported transaction size unchanged for bill issues, while the smallest
percentage, 61 per cent, was for coupon issues over 5 years to maturity.
Table IV
Size of Transactions that Primary Dealers were Usually Willing to Undertake*
(Percentage of respondents)

Size of
transaction

1961 - mid -1965
c ompared to 1955-60
Coupons
Coupons
under
over
Bills
5 years
5 years

Since mid-1965 c ompared
to 1961 - mid- 1965
Coupons
Coupons
under
over
Bills
5 years
5 years

Same

74

67

61

75

64

59

Increase

21

20

20

4

3

3

Decrease

4

12

19

20

33

38

100

100

100

100

100

100

Total

* Questions 12 and 13.
Note: Details may not add to totals because of rounding.
The mirror image of this variation by maturity sector can be
found in the reports of those investors who indicated that dealer willingness to undertake transactions had declined as compared to 1955-60.



17
It ranged from 4 per cent of the respondents in the bill sector to almost
20 per cent for coupon issues over 5 )^ears.

A comparison of the "increase"

group with the "decrease" group shown in Table IV for the time period
1961 - mid-1965 compared to 1955-60 suggests that the bill market had
improved in the early 'sixties while the coupon area was about unchanged.
This hypothesis, however, will be modified for the coupon area when the
same data are viewed from another perspective, as described below.
On the other hand, the responses suggest that the size of
transactions that dealers were willing to undertake declined sharply after
mid-1965.

For that period, some 20 per cent of the respondents reported

that the size of transactions dealers were willing to undertake as principals tended to be smaller in the bill area and about one-third of the
respondents reported similar experiences in coupon issues.

These responses

take on added significance in view of the respondents' size in terms of
holdings of Government securities or their market activity.

As shown in

Table V-B, those who reported a decline in size of transactions accounted
for well over 50 per cent of the holdings and market activity in the coupon
sectors.

Moreover, it becomes apparent that a serious decline in the size

of transaction that dealers were willing to undertake had already set in by
the early 'sixties for the coupon area when responses are weighted by holdings and activity.
Further accentuating the indicated deterioration of the market is the
fact that the size of transactions reportedly declined by 20 per cent or more
for a substantial number of investors.

In other words, for the larger

investors in particular, there appears to have been an appreciable decline
in the size of transactions that dealers were willing to undertake, especially
in the coupon area (see Tables A-7 to A-12).




18

Table V
Size of Transactions that Primary Dealers were Usually Willing to Undertake*

A.

Size of
transaction

1961 - mid-1965 compared to 1955-60

Comparison by per cent
of total holdings
Coupons
Coupons
under
over
Bills
5 years
5 years

Comparison by per cent
of total activity
Coupons
Coupons
under
over
Bills
5 years
5 years

Same

64

54

48

47

34

26

Increase

24

19

16

36

33

27

Decrease

12

27

37

17

33

48

100

100

100

100

100

100

Total

B.

Since mid--1965 compared to 1961 - mid 1965

61

44

39

57

32

22

Increase

7

3

3

7

6

1

Decrease

32

53

59

36

61

77

100

100

100

100

100

100

Same

Total

* Questions 12 and 13,
Note: Details may not add to totals because of rounding.

E.

Rating of Primary Dealers for Selected Characteristics
1.

Dealer Competitiveness and Competition from Other Markets
It was noted earlier that customer behavior in the Government

securities m a r k e t , as interpreted from answers to the questionnaire,
probably tended to encourage competition among the sellers (in particular,
the primary dealers).

Specifically asked to comment on whether competitive-

ness among the dealers they dealt with had changed since 1961 as compared
to 1955-60, about half of the investors in the survey reported that competitiveness had increased.

Only 7 per cent reported less competitiveness, while

43 per cent said it was about the same.

The question did not define competi-

tiveness so that the word had whatever characteristics the respondent



19
considered important in his own scale of v a l u e s , but certainly the customer's
attitude is one important factor in judging the effectiveness of a m a r k e t .
The validity of the responses about dealer competitiveness gains
added credence from the fact that investors made a similar report on the
aggressiveness with which dealers solicited business.

T h u s , 47 per cent

said that dealers were more aggressive in soliciting business since 1961
as compared to 1955-60, while only 9 per cent said that dealers were less
aggressive.
This wider ranging competitiveness in the Government securities
market in the 'sixties probably reflected the entry of new dealers into
the m a r k e t , the development of new financial instruments (such as C / D ' s ) ,
and the growth of existing instruments which could serve as substitutes
for Government securities.

At the same time, as noted earlier, the behavior

of the institutional customer, such as shopping among a relatively large
number of dealers, reinforced the competitive pressures which the dealers
were experiencing from these other directions.
The questionnaire also explored the extent to which institutional
investors broadened their investment horizons for a number of financial
instruments which both supplement and compete with U . S . Government securities.
Perhaps most surprising, in light of the widespread publicity about how
large investors had been extending their investment activities into new
areas in recent y e a r s , was the fact that more than half of the respondents
reported no activity in any of the several types of financial paper specifically
l i s t e d — c o m m e r c i a l paper of all types, bankers' acceptances, and short-term
municipal bonds.
type.

Nevertheless, there were significant increases for each

Thus 36 per cent of the respondents increased their activity in

finance company commercial p a p e r , 24 per cent increased their activity in




20
other commercial paper, 27 per cent increased their activity in short-term
municipal bonds, 22 per cent increased their activity in bankers' acceptances,
and 51 per cent increased their activity in a variety of other instruments
(see Table VI).^

In summary then, while more than half of the respondents

had not moved into any of these other financial markets, more than one-fourth
did expand their investment horizon.

Furthermore, these were the larger

firms so that the dollar amounts involved were probably quite sizable.
Table VI
Comparison of Institutional Investor Activity in Selected Short Term
Financial Instruments 1961 - mid-1965 compared to 1955-60*
(Percentage of respondents)
No activity

Increase

Decrease

Same

Total

Finance company
commercial paper

53

36

3

8

100

Other commercial paper

63

24

5

8

100

Bankers' acceptances

70

22

3

5

100

Short-term municipal bonds

55

27

8

10

100

Other short-term investments
(specified by respondent)#

37

51

5

7

100

*

Question 19.

#

Certificates of deposit made up less than half of the "increase" portion
of this category and Federal Agency issues about 20 per cent. Of course,
marketable C/D's were not available prior to 1961 and therefore were not
listed as a separate type of investment in the questionnaire.

Note:

Details may not add to totals because of rounding.

The trends just described for institutional investor activities in
short-term instruments other than Government securities followed a path
similar to the one traced by institutional investors in certain aspects of
the Government securities market itself.




In general, these activities

See footnote to Table VI for more details on "other instruments".

21
involved some of the more sophisticated points of Government securities market
operations, so that the trend toward greater activity suggests that investors
had become more knowledgeable about the intricacies of the market.

Broadly

speaking, while half or more of the respondents reported no change during
the period 1961 - mid-1965 compared to the period 1955-60 in the activities
specified below, some 25 per cent or more reported they were more active.
Thus, 32 per cent of the respondents were more active in buying longer
Treasury bills in the market and selling them before maturity to increase
their yield by riding the yield curve (compared to 13 per cent who reduced
such activities), and 25 per cent were more active in bidding in Treasury
bill auctions with a view toward quick resale, compared to 17 per cent who
were less active (see Table VII).
In the longer end of the market, about 25 per cent were more active
in trading to take advantage of changing price relationships between different
coupon issues (arbitraging) compared to 15 per cent who were less active.
Moreover, for commercial banks in the survey more than 40 per cent were
more active in trading coupon issues to increase their after-tax yield
compared to 24 per cent who were less active.
2.

Loans and Repurchase Agreements
In another important area of primary dealer o p e r a t i o n s — d e a l e r s

as an outlet for investor funds through loans or repurchase agreements-48 per cent of the respondents reported increased loan activity with dealers
since 1961 as compared to 1955-60, while another 45 per cent reported that
such activity was about the same.

Again, the investors who reported that

dealers were more important as an outlet for funds were among the larger
investors on average.




22

Table VII
Comparison of Activity in Selected Types of
Operations for 1961 - mid-1963 vs. 1955-60*
(Number of respondents and percentage of respondents)
Number of respondents

Percentage of total respondents

A . Institutional Investors Bidding in
Treasury Bill Auctions with View of Quick Resale
More active

60

25

Less active

41

17

140

58

241

100

About the same
Total

B.

Institutional Investors Riding the
Yield Curve in Treasury Bills

More active

84

32

Less active

34

13

148

56

266

100

About the same
Total

C.

Institutional Investors Arbitraging
in Coupon Issues

More active

69

25

Less active

43

15

166

60

278

100

About the same
Total

D . Commercial Bank Trading in Coupon Issues to
Increase the After Tax Yield of their Portfolios
More active

32

43

Less active

18

24

About the same

24

32

74

100

Total

* Question 6 .
Note: Details may not add to totals because of rounding.



23
The large increase in the number of respondents who found primary
dealers a more important outlet for funds through loans or repurchase agreements since 1961 is especially significant since more than half (55 per cent)
of the respondents reported that they entered into repurchase or resale
agreements with dealers, banks, or others in direct U . S. Government
securities.

The percentage of such investors far exceeded the percentages

for investors who entered into repurchase or resale agreements in other
securities such as Federal Agency issues (29 per cent), municipal securities
(5 per cent), and other types of securities (14 per cent).
3.

Other Dealer Services
In some other area of dealer s e r v i c e s — a s a source of information

and furnishing investment c o u n s e l — o n l y about 3 per cent of the respondents
reported that these services were not as good since 1961 as compared to
1955-60.

Forty-two per cent considered that the dealers were a better

source of information than before and 29 per cent reported that they received more astute investment counsel than before.

Well over 50 per cent

reported both these aspects of dealer operations as about the same.
F.

Miscellaneous Comments by Institutional Investors about the Market
Investors were specifically invited to comment about the functioning

of the Government securities market as it related to their investment activities and to include any suggestions that they might have for improving its
operations.

About a fourth (or about 100) of the respondents took advantage

of this invitation to comment.
of satisfaction with the market.

The most frequent single comment was one
Other comments ranged over a wide variety

of topics so that there were usually less than five respondents associated
with any one comment.




For convenience, the comments have been grouped.

24
One group of comments concerned the desirability of achieving
broader markets in the longer maturity areas or pointed out that this sector
of the market had deteriorated.

Suggestions by investors to broaden the

long end of the market included the dropping of the 4 1/4 per cent interest
rate ceiling on bonds; the reduction of the number of different issues in
the longer maturity areas in order to have fewer issues of larger size; and
a request that the Federal Reserve and Treasury Trust funds stay out of the
long-term market.
A number of suggestions concerned "housekeeping" type arrangements.
These included the elimination of the wire transfer fee in transferring
securities between Reserve Districts; the reduction in the length of time
it takes to transfer securities from bearer form to registered form or the
reverse; the extension of the tax anticipation bill to make it available
for all corporate tax payment dates and perhaps for other tax payment dates
as well, such as for withheld individual and social security taxes; and
increasing the size of the maximum amount of Treasury bills which could
be purchased through a non-competitive tender in the bill auctions.
A few investors also registered complaints about Government
securities dealers:

that dealers' spreads became too wide- in coupon issues

in a falling market; that dealers, at times, gave "phantom" quotations on
which they were not willing to make transactions or could not make transactions because they did not have the security in their inventory.

One

investor complained that the dealers are in a favored position relative to
other investors as to information about what the System Open Market Committee
is doing.
"Operation twist" was criticized for introducing a distortion between market "fundamentals" and what in fact did take place in the market.




25

Along similar lines, Treasury or Federal Reserve support activities around
a Treasury refunding date were criticized as a distortion of the free m a r k e t .
F i n a l l y , there was an implied criticism of the Government securities
market by some investors who simply stated that they no longer invested as
m u c h in Government securities as they had previously because competing
instruments now served their needs b e t t e r .

This criticism was sometimes

coupled with specific suggestions along lines mentioned above on how the
Government securities market might once again become more attractive.




26
III.

A.

Institutional Investors and Advance Refundings

Institutional Investor Participation in Advance Refundings
The Treasury had completed eleven advance refundings between

June 1960 (when this new debt financing technique was introduced) and the
end of 1965.

Fifty-nine per cent of the institutional investors in the

survey participated in these advance refunding operations.

These investors

were the larger investors as measured by the criteria used in the survey-market activity, holdings of Government securities, and asset s i z e — s o that
they accounted for 85 per cent of the market activity of the survey group,
72 per cent of the total h o l d i n g s , and 64 per cent of the assets (see Table V I I I ) .
The exchange of "rights" held prior to the announcement date of an
advance refunding was the form of participation mentioned most frequently
(by 165 out of the 227 respondents who participated in advance refundings).
M o r e than half of the institutions which exchanged rights participated in four
or more advance refundings.

The second most popular form of participation--

selling r i g h t s — w a s mentioned by 122 institutions and approximately one-third
of these institutions sold rights in four or more advance refundings.

The

high percentage of institutions participating in four or more (out of a
possible eleven) advance refundings during the period covered by the questionnaire is consistent with the respondents
about advance refundings, to be noted later.

1

generally favorable views
Other forms of participation

included purchase of when-issued securities (71 respondents) purchase of
rights (55 respondents) and selling when-issued securities (27 respondents).
An investor who exchanges rights held prior to an advance refunding operation is maintaining the size, but changing the maturity
structure, of his position in U . S . Government securities.

No market

transaction in the traditional sense takes place under these circumstances.






Chart III

PARTICIPATION IN ADVANCE REFUNDINGS
BY INSTITUTIONAL INVESTORS

Number of responses

Table V I I I
Participation in Advance Refundings Offered by the Treasury in the Period 1960-65
Comparison by Size of Respondents*
(Dollar amounts in m i l l i o n s )

Size criteria

Total dollar
size for group
Did not
Participated participate

Total

Per cent distribution
of total dollar size
Did not
Participated participate Total

Average dollar size
per respondent
Did not
Participated participate Total

Holdings

27,510

10,797

38,307

71.8

28.2

100

121.7#

71.5#

101.6

Activity

80,824

14,228

95,052

85.0

15.0

100

379.4#

100.9#

268.5

293,301

165,853

459,154

63.9

36.1

100

1,416.9##

1,247.0##

Assets

*

Question 15a.

#

Statistically different at the 1 per cent significance level.

##

N o t statistically different at the 10 per cent significance level.




1,350.4

28
On the other hand, some investors used advance refunding operations as an
opportunity to change the size of their portfolios of Government s e c u r i t i e s —
either disinvesting (by selling rights or when-issued securities) or investing
(by buying rights or when-issued securities).

For that part of the survey

group which undertook market transactions during the advance refunding
operations, it appears that these refundings may have been a vehicle for
some net disinvestment in Government securities since a total of 149 institutions disinvested (i.e. sold rights or when-issued securities) as compared
to a total of 126 institutions which invested (i.e. bought rights or
when-issued securities).

But the conclusion about net disinvestment cannot

be pushed very far because the data give only the number of institutions
engaging in a particular form of transaction—there is no information on
the size of each transaction.

Moreover, over the cycle of the eleven

advance refundings on which they reported, many respondents participated
in several (in some instances, all) of these possible market transactions
(i.e. bought rights or when-issued securities, sold rights or when-issued
securities).

It appears, therefore, that advance refunding operations

generated not only a substantial shift in the maturity composition of
portfolios held by institutional investors but also a substantial amount
of trading in rights and when-issued securities—particularly in later
refundings when securities with less than one year to maturity were made
eligible for exchange.

B.

Impact of Advance Refundings on Market Transactions in Outstanding Issues
Did advance refunding operations affect the extent to which insti-

tutional investors participated in the market for outstanding Government
securities?




Sixty-six per cent of the respondents said that their market

29
activities in outstanding issues were not affected by advance refunding
operations; 21 per cent reported that their market participation actually
increased during the period.

These two groups together, representing

87 per cent of the respondents, accounted for 73 per cent of market
activity during 1965, 79 per cent of total holdings as of the end of 1965,
and 82 per cent of total assets.
Although only 13 per cent of the respondents reported that advance
refundings reduced their activity in outstanding issues in the market, this
"decrease" group was composed of the larger institutions, on average, by
all the criteria of size used in this survey.

Consequently, they repre-

sented a more than proportionate amount of total activity or of total
holdings, accounting for 27 per cent of market activity, 21 per cent of
holdings, and 18 per cent of total assets (see Table A-28).

Nevertheless,

even though the group which increased its activity was smaller in all the
size criteria than the group which decreased its market activity, the
increase group had sufficiently more institutions in its group so that it
accounted for a substantially larger amount of aggregate total holdings
at the end of 1965, total market activity during 1965, and total assets.
Thus, the survey tends to support (though not very strongly) the view that
advance refundings may have increased market activity in outstanding issues
in the period 1960-65.
C.

Institutional Investors

1

Attitudes Toward Advance Refundings

Almost all institutional investors held a favorable attitude toward
advance refundings or at least were neutral.

Less than 4 per cent held an

unfavorable view of advance refundings; these represented about 4 per cent of
holdings by respondents and about 8 per cent of market activity by respondents




30
(see Table A-29).

The remainder either held favorable views of advance

refundings (more than 50 per cent of the holdings, market activity, and
assets) or were neutral about the advance refunding technique (roughly
40 per cent of holdings, market activity, and assets).
The lack of any widely held unfavorable views of advance refundings
by institutional investors seems reasonable.

Advance refundings opened

up options to the market as a whole which otherwise would not have been
available, notably for longer term issues some of which could not have
been marketed in a cash offering owing to the limited demand for such
issues that exists at any given time.

Even though the size of the debt

was unaffected, advance refundings did change the debt structure, which,
of course, was the objective of the Treasury."*"

With a greater variety of

maturities to choose from, a wider range of investors could be attracted to
invest in Government securities, not only in an advance refunding operation
but also in subsequent periods when the maturity range of the debt continued
to be broader because of the securities made available through already
completed advance refundings.

Finally, those who might have been anxious

to sell an outstanding low coupon issue, but were deterred by potential
capital losses and other considerations, were better able to market these
holdings by selling rights to issues eligible in the various advance
refundings.

This altered structure of the outstanding debt undoubtedly
affected to some degree the kinds of securities offered in new cash
financings. Of course, this does not imply that there were not other
forces at work during the same period which also altered the mix of securities offered in new cash f i n a n c i n g s — f o r example, innovations in the amounts
and forms of the bill issues designed to help improve the balance of payments,
among other objectives.




31

IV.

Institutional Investors and Official Operations in Coupon Securities
The U . S . Government securities market is unique among financial

markets in several respects.

One facet of the uniqueness of this market is

the active participation of two very large official c u s t o m e r s — T h e Federal
Reserve System and the U . S . T r e a s u r y — b o t h as buyers and sellers of outstanding securities.

Since transactions of these official agencies are

likely to be large and at times affect interest rate expectations of other
investors, the questionnaire sought to determine whether Federal Reserve
and Treasury operations in coupon issues have affected the investment
operations of institutional investors.

A.

Influence of Official Operations in Coupon Issues on Investment
Activity of Institutional Investors
The institutional investors were asked, "have purchases of

Treasury coupon issues in the open market by the Federal Reserve System to
supply bank reserves, or by the U . S . Treasury trust accounts for their
investments tended to affect your investment operations?"

Seventy per cent

of the respondents answered "no", their investment operations were not
affected, while 30 per cent responded "yes", their investment operations
were affected.
The institutions comprising the 30 per cent who were influenced
in some way were the larger institutions in terms of the three size criteria
reported in the s u r v e y — h o l d i n g s of U . S . Government securities, market
activity, and assets (see Table IX).

It is not surprising that the larger

institutions were influenced more than smaller institutions since larger
organizations are likely to have more employees concerned with financial
m a n a g e m e n t , as well as more sophisticated personnel.




In addition, a large

32
proportion of the "yes" answers came from industries (such as commercial
banks and insurance companies) that would be most likely to have highly
specialized financial staffs.
Table IX
Average Size of Institutions whose Investment Activities were Affected
or Not Affected by Federal Reserve and U . S . Treasury Trust
Account Operations in the Coupon Market
Size Comparison Among Respondents*
(In millions of dollars)
Size criteria

Affected

Not affected

Holdings

126.0#

89.4#

Activity

474.9##

169.7##

Assets
*
#
##
t

B.

1,661.7+

1,183.9t

Question 18.
Statistically different at the 8 per cent significance level.
Statistically different at the 1 per cent significance level.
Not statistically different at the 10 per cent significance level.

Influence on the Ability of Institutional Investors to Conduct Market
Transactions
The preceding statistics while accurate and interesting, nonethe-

less skirt an important issue; that is, the extent to which market behavior
was influenced for those who were affected by official transactions and
the proportion of the total market activity these investors represented
of the survey group.

Aspects of this problem were placed in perspective

when investors who were influenced by official activity in coupon issues
indicated whether the official activity tended to increase, decrease, or
left unaffected their ability to conduct swaps or other transactions in
the market.




Chart IV

INFLUENCE OF OFFICIAL OPERATIONS IN COUPON ISSUES ON INVESTMENT ACTIVITY
OF INSTITUTIONAL INVESTORS
INFLUENCED VS NOT INFLUENCED
Influenced
Not influenced
FORM OF INFLUENCE
1. Ability to conduct market transactions
Unaffected
Decreased ability
Increased ability
2. Duration of influence on interest rate expectations
Few days
Few weeks
Few months




1

50

100

1

150
200
Number of responses

250

300

33
Respondents who were affected by official operations and whose
ability to conduct swaps or other transactions in the market tended to
decrease accounted for 31 per cent of market activity in U . S. Government
securities and for 18 per cent of the holdings of Government securities
(see Table A-30).

Stated another way, respondents accounting for 69 per

cent of the market activity reported in the survey and 82 per cent of
holdings of Government securities were not affected in their investment
operations or found that official activity tended to increase their ability
to conduct transactions in the market.

Since our survey covered the larger

holders of Government securities, and within this universe the large holders
were influenced more by official operations than the smaller institutions,
it seems reasonable to conclude that the percentages for those unaffected
by official operations probably would be somewhat higher if the universe
of all holders of marketable U . S . Government securities could have been
surveyed.
On the other hand, respondents whose investment operations were
influenced by official purchases in the coupon area and whose ability to
conduct transactions in the market tended to decrease held a larger average
amount of Government securities at the end of 1965 and engaged in a larger
average volume of market activity in Government, securities than the groups
whose investment operations were unaffected by official transactions or
whose ability to conduct transactions in the market increased.

Consequently,

the "decrease" group may have exerted an influence out of proportion to
its numbers.

As just noted, this group accounted for 31 per cent of the

total market activity reported in the survey although it constituted less
than 10 per cent of the respondents.

Moreover, the decrease group was

more than twice as large as the increase group in terms of total holdings,
total market activity, and total assets.



34
It is also reasonable to expect that the views and activities of
members of the decrease group probably exerted a more than proportionate
influence on attitudes in the dealer market since these institutions tend
to be more visible in the market because of the size of their individual
transactions and it is likely that individually they are in the market more
frequently than the other institutions.

It is also possible that members

of this group maintain a closer touch with the dealer organizations than
the rest of the market so that their views exert an influence even when they
are not trading."'"

Although no precise quantitative estimate is possible,

the factors discussed above suggest that official activity in the coupon
area may have reduced activity of institutional investment to some extent.

C.

Influence of Official Activity on Expectations of Institutional Investors
Concerning Interest Rates
Respondents who reported that official activity tended to affect

their investment operations were also asked whether the official activity in
coupon issues influenced their judgment about the future course of interest
rates.

In general, institutions with the larger average holdings and with

the larger average market transactions were influenced over a shorter
time-horizon than those who had smaller holdings and engaged in less gross
market activity.

^ As already noted, the institutions which indicated that their
ability to conduct market transactions had decreased were, as a group, the
ones with the largest average market activity. It would have been interesting
to find out by how much their market activity did in fact decline as a consequence of official operations in the coupon area. Unfortunately the survey
does not have information on this question. Had an attempt been made to
obtain such information, the interpretation of the results would have had
to be very cautious indeed, since so many other factors influencing institutional investors in their market activities were at work at the same time.




35
Institutions which reported that they were influenced for only a
"few days" had total Government portfolios averaging $158 million and an
average volume of transactions in 1965 of $674 million (see Table A-31).
These institutions accounted for about one-third of total dollar holdings
and a similar percentage of total market activity for respondents in the
survey.

Institutions which reported that they were influenced "over the

next few weeks" had average holdings of $151 million and an average volume
of market transactions of $592 million, somewhat smaller averages than for
the previous group.

This group of institutions accounted for half of all

holdings and half of all market activity.

Thus, a combination of these

two groups, those influenced for a few weeks, at m o s t , accounted for at
least 80 per cent of total holdings and total market activity.

The institu-

tions influenced in their views about the future course of interest rates
for the longest period of time--"over the next few m o n t h s " — a c c o u n t e d for
20 per cent or less of total holdings and of total market activity and
these institutions were substantially smaller in average size of holdings
($84 million) and in average market activity ($271 million) than the
previous two categories which were influenced for much shorter periods.




36
V.

Appendix

Details of the Survey
A-

Survey Sample
The questionnaire was sent to institutional investors who are

major holders of U . S . Government securities in order to obtain their views
about the performance of the Government securities market.

Four hundred and

seventy-three questionnaires were mailed and 397 replies were obtained.
Respondents to the questionnaire held almost 24 per cent of the total
marketable U . S, Government securities outstanding as of December 1965,
excluding those held by the U . S. Treasury and the Federal Reserve.

Among

the 75 no responses were 10 questionnaires which were returned with insufficient information to be useful.

The largest "no response" group was

State and local g o v e r n m e n t s — b o t h general funds and retirement funds.

Some

details of the industry distribution of the questionnaire are shown below:

Industry

Number of
respondents

No
response

Holdings of
Government securities
by respondents as %
of industry group*

Commercial banks

79

3

24

Mutual savings banks

49

4

48

Life insurance companies

47

5

86

Casualty, fire and marine
insurance companies

42

10

59

Savings & loan associations

42

8

35

Nonfinancial corporations

49

3

69

37

14

68

20

16

55

32

12

n.a.

397

75

State & local governments
General funds
Pension & retirement
funds
Miscellaneous
Includes colleges,
foundations, trade
unions and mutual funds
Total

n . a . - Not available,
* Holdings of respondents taken as a percentage of industry group as reported
in Treasury Survey of Ownership, December 1965, in Treasury Bulletin.



37

B•

Limitations of the Data
1.

Averages
The averages computed for asset size of the respondents are based

on a smaller number of respondents than averages computed for holdings or
market activity since a meaningful asset figure was not available for some
respondents, most particularly State and local governments.

Also all asset

figures were not for exactly the same period because some respondents had
fiscal years which were different from the calendar year.
Averages based upon market activity during 1965 also posed some
difficulties.

One very knowledgeable respondent indicated that it was

difficult for his institution to answer the question about its market
activity during 1965 because the form of its record-keeping made no distinction between market transactions and subscriptions to new issues or
maturities of old issues.

He believed that this situation may well have

been true of other institutions.

He wondered, therefore, whether other

respondents had been willing to devote the large amount of top level staff
resources to answering the questionnaire as was required for his institution.
In addition, despite the instructions to respondents to separate outright
market transactions from repurchase agreements, this distinction may not
be uniformly reflected in the data.

M o s t , if not all, institutions

(other than commercial banks) record repurchase agreements as a simultaneous
purchase and sale.

And it is doubtful that many of these firms would have

been able, or willing, to remove from their transactions data those purchases and sales that represent the acquisitions and redemptions of repurchase
agreements.
It should be noted, however, that three different averages were
computed for determining size and that in most cases all three averages



38
tended to give similar results.

In addition, many of the interpretations

in the paper were based on aggregates rather than averages.
often were given simply by number of respondents.

Finally, results

Where there is substantial

variation in the results for the same question when different summary
measures are used, the interpretation must necessarily be somewhat cautious
but, as noted earlier, in most cases the preponderance of evidence seemed
to be pointing in the same direction.
2.

Singificance tests
Averages for the three size criteria (holdings of Government

securities as of December 1965, market activity during 1965, and assets
as o f , or statement date closest to, December 31, 1965) computed for
groupings of survey respondents discussed in this memorandum generally
were significantly different for two of these criteria—holdings and market
a c t i v i t y — w h i l e the results obtained for the asset size criterion were mixed.
For the most part, the averages for holdings and activity were different
at the 5 per cent significance level or less.

In those instances when the

averages were not significantly different, this fact was not damaging for
the point under discussion.
The details of the statistically significance differences between
the averages is given at the bottom of each appendix table or on the page
following the table.

Significance levels are given only when such differences

were at the 10 per cent level or less.




Table A-l
Type of Dealer Used by Institutional Investor Transacting
All Business with One Type of Dealer*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )
1965
Total dollar size

Per cent distribution of
total dollar size
Activity
Assets
Holdings

Holdings

Activity

Assets

96.7

102.4

2.46.3

1,468.1

9.1

3.3

61.3

134.7

355.6

0

0

0

0

0

0

0

0

0

0

0

0

Activity

Assets

25,295

56,662

333,281

90.0

90.9

2,824

5,660

11,381

10.0

O t h e r Security F i r m s

0

0

0

Direct Transactions

0

0

0

Holdings
P r i m a r y Dealers
O t h e r Banks

Average dollar size

1961
Primary Dealers
Other Banks

25,297

59,028

342,117

88.0

88.8

,1
96.

104.2

257.7

1,493. 9

3,395

7,379

12,659

11. 8

11.1

.6
3.

67.9

157.0

361.
,6

68

75

1,055

0.2

0.1

0.
.3

22.6

37.5

.6
351.

0

0

0

0

0

0

Other Security F i r m s
Direct Transactions

*

Question 7




0

0

0




Table A-la
Results of Statistical Significance Tests
for Table A-l
(Per cent levels)

Size criteria

Between "Primary Dealers Only"
and "Other Banks Only"
1965
1961

Holdings

2

Activity

7

Assets

1

3

1

Table A-2
Number of Primary Dealers in U . S. Government Securities
Used by Institutional Investors*
Size Comparison Among Respondents
(Dollar amounts in millions)

Number
of dealers

Size criteria

Total dollar
size for group
1961
1965

Bills
Per cent
distribution of
total dollar size
1961
1965

1

Holdings
Activity
Assets

2,740
2,332
46,599

2,705
1,818
53,491

8,
.2
2,
,6
.0
11,

8 ,1
2 .1
12 . 6

2

Holdings
Activity
Assets

1,911
6,097
29,433

1,222
1,340
19,549

5 .7
,9
6,
,0
7,

3-5

Holdings
Activity
Assets

6,937
14,966
66,614

5,934
8,745
75,966

6-10

Holdings
Activity
Assets

11,335
23,372
145,116

More than 10

Holdings
Activity
Assets

10,678
41,524
135,327

Average dollar
size per
respondent
1961
1965
60,
.8
53 ,0
1,059.
.0

50.0
35.6
1,009.2

3 .7
1 .5
4 .6

50.
.2
174.
.2
774.
,5

38.1
44.6
592.3

20,
,6
.0
17,
15,
.7

17 . 8
9 .9
17 .8

69.
,3
154 o
,2
774.
.5

66.6
99.3
999.5

10,869
22,030
128,858

.7
33,
26.
.5
34.
.3

32 .6
25 ,0
30,
.2

145.
,3
303.
.5
1,934. 8

132.5
271.9
1,695.5

12,589
54,195
148,181

31.
,8
,0
47 ,
,0
32,

37 .8
.5
61.
.8
34,

,5
323.
1,258. 3
4,510. 9

307.0
1, 321.8
3, 899.5

Coupons Under 5 Years

1

Holdings
Activity
Assets

2,213
1,675
36,758

1,862
1,452
24,164

7 .1
,
I, 9
.
9,
.5

6.
.1
1.
.7
.6
6.

56,
,7
50,
,7
,0
1,021.

44.
.3
37.
,2
589.
,3

2

Holdings
Activity
Assets

1,964
4,636
21,064

986
1,768
19,375

6,
.3
5 .4
.4
5.

,2
3,
,0
2,
5,
.3

.1
49.
125.
,2
540,
.1

,8
32.
,1
63.
,0
625.

3-5

Holdings
Activity
Assets

7,618
18,516
82,387

6,690
13,266
66,522

24,
.4
21 ,4
.2
21.

.8
21.
15.
.3
.1
18.

.2
73.
190.
,8
.1
858.

64,
,9
,0
134.
,0
731.

6-10

Holdings
Activity
Assets

11,269
28,261
159,563

11,310
22,651
154,149

36 .0
.7
32,
41,
.1

,8
36,
26.
,2
.1
42.

.4
144.
367,
,0
2,127,
,5

,8
152.
310.
,2
2,171.
.1

More than 10

Holdings
Activity
Assets

8,199
33,455
88,252

9,889
47,450
102,357

26,
.2
38,
J
22,
.7

32.
.2
54,
,8
.9
27.

.6
303.
,0
1,239,
3,677,
.1

253,
.5
1,248.
.6
.2
2,843,

Coupons Over 5 Years
Holdings
Activity
Assets

1,836
1,559
25,358

2,863
3,106
30,800

6.8
2.2
9.2

10,
.2
4,
.3
9.
.5

48.
,3
43.
,3
724,
.5

77.
.3
.0
97.
,8
905.

2

Holdings
Activity
Assets

2,290
4,070
27,209

2,208
5,7 54
29,032

8.5
5.6
9.8

,9
7,
,9
7,
,0
9.

71.
.5
140.
,3
877 c ,7

,6
59.
159.
.8
,6
784.

3-5

Holdings
Activity
Assets

7,938
21,619
88,351

6,917
10,967
118,739

29.5
30.0
32.0

.7
24.
,1
15.
36,
.7

79.
,3
234 <
,9
1,003,
.9

76.
,8
127.
,5
.0
1,503.

6-10

Holdings
Activity
Assets

8,113
18,937
88,061

7,415
16,750
80,077

30.2
26.3
31.9

26,
.5
.1
23.
24.
,7

135,
.2
.6
315.
1,544.
.9

,6
125.
288.
.7
,9
1,455.

More than 10

Holdings
Activity
Assets

6,686
25,869
47,272

8,578
35,876
64,995

24.9
35.9
17.1

.7
30,
49,
.5
.1
20,

371,
.4
.1
1,437.
2,954.
,5

.7
295,
.1
1,237,
2,407.
.2

 * Question 8


1+2

Table A-2a
Results of Statistical Significance Tests
for Table A-2
The averages for groups using 3-5, 6-10, or more than 10 dealers
for bill trading in 1961 and 1965, were different from each other at the
1 per cent significance level for virtually all size criteria (holdings
of Government securities, market activity, and assets).

The same was true

for investors trading bills with 2 as compared with 3-5 dealers in 1965,
except that the averages for assets for the two groups were not statistically
different at the

10 per cent significance level.

For coupon issues maturing in less than 5 years, all the averages
for the institutions who traded with either 3-5, 6-10, or more than 10 dealers
during 1961 and 1965 differed from each other mostly at the 5 per cent
significance level with only one major exception.

The averages for hold-

ings and activity of the respondents using 3-5 as against 1 or 2 dealers
during 1965 were statistically different from one another at least at the
6 per cent level, but no differences were apparent in their respective
asset sizes at the 10 per cent confidence level.
In 1961 and 1965 trading of coupon issues maturing in more than
5 years, the averages for holdings and activity of those investors using
either 3-5, 6-10, or more than 10 dealers were usually different from each
other at the 5 per cent level and below except for the asset averages which
again showed no differences at the 10 per cent significance level.




Table A-3
Factors of Considerable Importance in the Selection of
Primary Dealer by Institutional Investors*
Size Comparison Among Respondents
(Dollar amounts in millions)
Total dollar size
for group
Holdings Activity
Assets

Per cent distribution
of total dollar size
Holdings Activity
Assets

Average dollar size
per respondent
Holdings Activity
Assets

Other banking or financial
business with primary
dealer or bank

15,286

38,522

177,881

11.3

10.5

10.7

85.8

227.9

1,111.7

Size of transaction primary
dealer will usually undertake on quoted markets

26,874

76,190

339,694

19.8

20.8

20.5

160.9

485.2

2,220.2

Primary dealer's bid or offer
prices in past transactions
tended to be best quotation

35,083

83,486

422,367

25.9

22.7

25.5

112.8

285.9

1,476.8

Importance of primary dealer
as source of investment
counsel

12,488

44,155

169,176

9.2

12.0

10.2

81.6

306.6

1,199.8

Importance of primary dealer
as outlet for funds through
repurchase agreements

7,517

21,601

111,881

5.5

5.9

6.8

121.2

366.1

1,928.9

Speed at which primary dealer
completes transactions

17,166

38,248

181,981

12.7

10.4

11.0

114.4

273.2

1,348.0

Primary dealer contacts you

13,170

44,209

156,607

9.7

12.0

9.5

112.5

401.9

1,477.4

7,357

19,615

92,263

5.4

5.3

5.5

75.0

213.2

1,002.8

536

949

4,404

0.4

0.3

0.3

67.0

118.6

629.1

100.0

100.0

100.0

Primary dealer also provides
trading facilities in a broad
range of obligations other
than Government securities
Miscellaneous factors
Total
*

Question 10




Table A-3a
Results of Statistical Significance Tests
for Table A-3
(Per cent levels)
Between "Size of Transaction" and
Size criteria

"Other Financial
Business"

"Bid and Offered
Prices"

"Investment
Counsel"

"Speed of
Completion"

Holdings

1

2

1

6

Activity

1

3

10

5

Assets

1

4

1

3




Table A-5
Most Important Factor Determining Selection of Primary Dealer by
Institutional Investors for Trading inCouponIssuesUnder5YearstoM a t u r i t y *
Size Comparison Among Respondents
(Dollar amounts in millions)
Total dollar size
for group
Holdings Activity
Assets

Per cent distribution
of total dollar size
Holdings Activity
Assets

Average dollar size
per respondent
Holdings Activity
Assets

Other banking or financial
business with primary
dealer or bank

3,498

6,803

37,596

10.2

7.6

8.7

51.4

106.2

637.2

Size of transaction primary
dealer will usually undertake on quoted markets

9,033

25,713

132,346

26.3

28.9

30.6

258.0

803.5

4,411,5

Primary dealer's bid or offer
prices in past transactions
tended to be best quotation

17,604

49,063

233,709

51.2

55.2

54.0

94.1

275.6

1,335.4

Importance of primary dealer
as source of investment
counsel

984

2,730

6,056

2.9

3.1

1.4

54.6

160.5

432.5

Importance of primary dealer
as outlet for funds through
repurchase agreements

517

288

7,732

1.5

0.3

1.8

86.1

57.6

1,288.6

Speed at which primary dealer
completes transactions

1,916

1,038

8,544

5.6

1.2

2.0

119.7

64.8

657.2

452

2,785

3,680

1.3

3.1

0.9

56.5

348.1

525.7

22

109

422

0.1

0.1

0.1

22.0

109.0

422.0

332

418

2,588

1.0

0.5

0.6

83.0

104.5

647.0

100.0

100.0

100.0

Primary dealer contacts you
Primary dealer also provides
trading facilities in a broad
range of obligations other
than Government securities
Miscellaneous factors
Total
*

Question 11




Table A-4a
Results of Statistical Significance Tests
for Table A-4
(Per cent levels)
Between
Size criteria

"Other Financial
Business"

"Bid and Offered
Prices"

"Investment
Counsel"

"Speed of
Completion"

and "Size of Transaction"
Holdings

1

1

8

Activity

5

2

1

Assets

1

1

1

and " Bid and Offer Prices"
Holdings
Activity

1

Assets

3




Table A-5
Most Important Factor Determining Selection of Primary Dealer by
Institutional Investors for Trading in Coupon Issues Under 5 Years to Maturity*
Size Comparison Among Respondents
(Dollar amounts in millions)
Total dollar size
for group
Holdings Activity
Assets

Per cent distribution
of total dollar size
Holdings Activity
Assets

Average dollar size
per respondent
Holdings Activity
Assets

Other banking or financial
business with primary
dealer or bank

2,582

4,446

27,159

7.9

5.1

6.4

56.1

103.3

678.9

Size of transaction primary
dealer will usually undertake on quoted markets

8,170

23,813

130,387

24.9

27c 4

300 8

247.5

744.1

4,206.0

Primary dealer's bid or offer
prices in past transactions
tended to be best quotation

18,173

50,666

212,682

55.4

58.3

50.2

91.7

273.8

1,143.4

Importance of primary dealer
as source of investment
counsel

1,758

3,769

13,988

5.4

4.3

3.3

58.6

125.6

538.0

Importance of primary dealer
as outlet for funds through
repurchase agreements

150

30

3,152

0.5

0.0

0.7

50.0

10.0

1,050.6

Speed at which primary dealer
completes transactions

579

720

4,014

1.8

0.8

0.9

96.5

120.0

802.8

Primary dealer contacts you

817

2,792

26,974

2.5

3.2

6.4

136.1

465.3

5,394.8

Primary dealer also provides
trading facilities in a broad
range of obligations other
than Government securities

218

187

2,767

0.7

0.2

0.7

72.6

62.3

922.3

Miscellaneous factors

332

418

2,588

1.0

0.5

0.6

83.0

104.5

647.0

100.0

100.0

100.0

Total
*

Question 11




,

Table A-5a
Results of Statistical Significance Tests
for Table A-5
(Per cent levels)
Between
Size criteria

"Other Financial
Business"

"Bid and Offered
Prices"

"Investment
Counsel"

"Speed of
Completion"

and "Size of Transaction"
Holdings

1

1

7

Activity

8

2

2

Assets

1

1

1

and "Bid and Offer Prices"
Holdings

3

Activity

3

Assets

1




Table A-5
Most Important Factor Determining Selection of Primary Dealer by
Institutional Investors for Trading in Coupon Issues Under 5 Years to Maturity*
Size Comparison Among Respondents
(Dollar amounts in millions)
Total dollar size
for group
Holdings Activity
Assets

Per cent distribution
of total dollar size
Holdings Activity
Assets

Average dollar size
per respondent
Holdings Activity
Assets

Other banking or financial
business with primary
dealer or bank

2,262

2,985

25,094

7.6

4.0

6.9

61.1

Size of transaction primary
dealer will usually undertake on quoted markets

7,182

17,230

119,462

24 o 0

22.9

33o 1

189.0

465,6

3,413.2

Primary dealer's bid or offer
prices in past transactions
tended to be best quotation

17,390

48,899

187,378

58.1

65.1

51.9

94.5

291.0

1,102.2

Importance of primary dealer
as source of investment
counsel

1,528

3,318

12,143

5.1

4.4

3.4

66.4

144.2

607.1

Importance of primary dealer
as outlet for funds through
repurchase agreements

13

8

953

0.0

0.0

0.3

13.0

8.0

476.5

Speed at which primary dealer
completes transactions

737

791

4,594

2.5

1.1

1.3

92.1

98.8

765.6

Primary dealer contacts you

455

1,435

7,142

1.5

1.9

2.0

75.8

239.1

1,428.4

Primary dealer also provides
trading facilities in a broad
range of obligations other
than Government securities

218

187

2,767

0.7

0.2

0.8

72.6

62.3

922.3

Miscellaneous factors

171

311

1,826

0.6

0.4

0.5

85.5

155.5

913.0

100.0

100.0

100.0

Total
*

Question 11




85 c 2

809.4

Table A-6a
Results of Statistical Significance Tests
for Table A-6
(Per cent levels)
Between
Size criteria

"Other Financial
Business"

'Bid and Offered
Prices"

"Investment
Counsel"

"Speed of
Completion"

and "Size of Transaction"
Holdings

1

Activity

1

2

1

8

10

4

Assets

1

6

1

2

and "Bid and Offer Prices"
Holdings

10

Activity

1

Assets




51

Table A-7
Size of Transactions that Primary Dealers were Usually Willing to Undertake
1961-mid 1965 Compared to 1955-60 for Trading in Treasury Bills*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Size of
transaction

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Increased
up to 20%

Holdings
Activity
Assets

2,115
3,859
45,339

6.5
4.4
11.9

88.1
175.4
1,813.5

Increased
m o r e than 20%

Holdings
Activity
Assets

5,695
27,571
62,686

17.6
31.5
16.5

167.5
861.5
2,089.5

Decreased
up to 20%

Holdings
Activity
Assets

2,494
12,319
23,418

7.7
14.1
6.2

498.8
2,463.8
4,683.6

Decreased
m o r e than 20%

Holdings
Activity
Assets

1,518
2,895
17,723

4.7
3.3
4.7

216.8
413.5
2,531.8

Remained
the same

Holdings
Activity
Assets

20,606
41,004
231,541

63.5
46.8
60.8

101.0
210.2
1,258.3

*

Question 12

Statistical significance (Per cent levels):




Between "Increased m o r e than 20%" and:
"Increased
up to 20%>"

"Remained
the same"

Holdings

3

5

Activity

1

1

Size criteria

Assets

5 2

Table A-8
Size of Transactions that Primary Dealers were Usually Willing to Undertake
1961-mid 1965 Compared to 1955-60 for Trading in Coupons Under 5 Years*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Size of
transaction

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Increased
up to 207,

Holdings
Activity
Assets

2,858
8,427
41,526

9.3
9.8
11.1

109.9
351.1
1,661.0

Increased
m o r e than 207.,

Holdings
Activity
Assets

3,057
19,954
33,663

9.9
23.2
9.0

109.1
798.1
1,346.5

Decreased
up to 20%

Holdings
Activity
Assets

3,435
11,731
45,970

11.2
13.6
12.3

180.7
617.4
2,704.1

Decreased
m o r e than 20%

Holdings
Activity
Assets

4,791
16,444
49,565

15.6
19.1
13.2

342.2
1,174.5
3,540.3

Remained
the same

Holdings
Activity
Assets

16,639
29,418
204,432

54.1
34.2
54.5

93.4
174.0
1,246.5

Question 12

Statistical significance (Per cent levels):




Between "Decreased more than 20%" and:
Size criteria

"Increased
up to 20%"

"Remained
the same"

Holdings

3

Activity

7

Assets

5

5 3

Table A-9
Size of Transactions that Primary Dealers were Usually Willing to Undertake
1961-mid 1965 Compared to 1955-60 for Trading in Coupons Over 5 Years*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )
Size of
transaction

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Increased
up to 20%

Holdings
Activity
Assets

1,334
4 , 341
14,155

4.6
5.7
4.5

63.5
241.1
745.0

Increased
more than 20%

Holdings
Activity
Assets

3,156
15,711
44,519

10.9
20.8
14.1

112.7
628.4
1.780.7

Decreased
up to 20%

Holdings
Activity
Assets

2,749
12,175
30,493

9.5
16.1
9.6

152.7
716.1
1.905.8

Decreased
more than 20%

Holdings
Activity
Assets

8,003
23,744
95,895

27.6
31.4
30.3

266.7
791.4
3,306.7

Remained
the same

Holdings
Activity
Assets

13,789
19,594
131,416

47.5
25.9
41.5

89.5
135.1
952.2

Question 12

Statistical significance (Per cent levels):




Between
Size criteria

"Increased
up to 20%"

"Remained
the same"

and "Increased more than 20%"
Holdings
Activity
Assets
and "Decreased more than
Holdings

1

1

Activity

8

2

Assets

1

1

207o"

Table A-10
Size of Transactions that Primary Dealers were Usually Willing to Undertake Since
mid 1965 Compared to 1961-mid 1965 for Trading in Treasury Bills*
Size Comparison Among Respondents
(Dollar amounts in millions)

Size of
transaction

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Increased
up to 20%

Holdings
Activity
Assets

868
1,275
12,320

2.7
1.4
3.3

144.6
255.0
2,053.3

Increased
more than 207o

Holdings
Activity
Assets

1,294
4,988
3,974

4.0
5.6

1.1

215.6
831.3
794.8

Decreased
up to 20%

Holdings
Activity
Assets

6,467
23,504
83,750

19.9
26.5
22.1

195.9
734.5
2,537.8

Decreased
more than 20%

Holdings
Activity
Assets

3,996
8,747
43,802

12.3
9.9
11.6

166.5
380.3
1,825.0

Remained
the same

Holdings
Activity
Assets

19,873
50,219
234,628

61.2
56.6
62.0

94.1
249.8
1,254.6

*

Question 13

Statistical significance (Per cent levels):




Size criteria

Between "Remained the same"
and "Decreased up to 20%"

Holdings

10

Activity

6

Assets

8

5 5

Table A-ll
Size of Transactions that Primary Dealers were Usually Willing to Undertake Since.
m i d 1965 Compared to 1961-mid 1965 for Trading in Coupons Under 5 Years*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Size of
transaction

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Increased
up to 20%

Holdings
Activity
Assets

581
723
10,084

1.9
0.8
2.7

145.2
241.0
2,521.0

Increased
more than 20%

Holdings
Activity
Assets

310
4,902
3,321

1.0
5.6
0.9

77.5
1,225.5
830.2

Decreased
up to 20%

Holdings
Activity
Assets

6,936
18,855
83,675

22.3
21.6
22.2

154.1
428.5
1,901.7

Decreased
more than 207>

Holdings
Activity
Assets

9,482
34,732
100,455

30.4
39.8
26.6

789.3
2,391.7

Holdings
Activity
Assets

13,837
28,065
179,685

44.4
32.2
47.6

79.0
169.0
1,130.0

Remained
the same

206.1

Question 13

Statistical significance (Per cent levels):




Between
Size criteria

"Decreased
up to 20%"

"Decreased
more than 20%"

and "Increased more than 207o"
Holdings

10

1

3

1

Activity
Assets

and "Remained the same"
Holdings

4

Activity

4

Assets

1
1
3

5 6

Table A-12
Size of Transactions that Primary Dealers were Usually Willing to Undertake Since
mid 1965 Compared to 1961-mid 1965 for Trading in Coupons Over 5 Years*
Size Comparison Among Respondents
(Dollar amounts in millions'*
Size of
transaction

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Increased
up to 20%

Holdings
Activity
Assets

552
704
9,995

1.9
0.9
3.1

Increased
more than 20%

Holdings
Activity
Assets

163
404
2,424

0.5
0.8

40.7
101.0
606.0

Decreased
up to 20%

Holdings
Activity
Assets

4,197
18,547
58,230

14.7
24.2
18.3

131.1
598.2
1,819.6

Decreased
more than 20%

Holdings
Activity
Assets

12,452
40,090
133,820

43.7
52.4
42.2

191.5
646.6
2,230.3

Remained
the same

Holdings
Activity
Assets

11,106
16,823
112,979

39 .0
22.0
35.6

74.5
120.1
862.4

0.6

Question 13

Statistical significance (Per cent levels):




Between
Size criteria

"Decreased
up to 20%"

"Decreased
more than 20%"

and "Increased more than 20%"
Holdings

2

Activity

3

Assets

3
and "Remained the same"

Holdings
Activity
Assets

2

10

138.0
352.0
3,331.6

5 7

Table A-15
Changes in Selected Characteristics of Primary D e a l e r s ,
1961-65 Compared to1955-60—InvestmentC o u n s e l *
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Per cent
distribution of
total dollar size

20,577

58.6

124.7

Activity

51,674

57.1

327.0

223,579

50.2

1,490.5

Holdings

3,981

11.3

189.5

Activity

18,328

20.2

916.4

Assets

56,523

12.7

2,826.1

Holdings

More

Total dollar
size for group

Holdings

Degree of
characteristic

10,534

30.0

73.1

Activity

20,513

22.7

155.4

165,016

37.1

1,231.4

Size criteria

Assets

Less

About the same

Assets

Average dollar size
per respondent

Question 14

Statistical significance:

W i t h m i n o r exceptions the averages for the various size
groupings were not statistically different at the 10 per cent
significance level.




5 8

Table A-14
Changes in Selected Characteristics of Primary Dealers,
1961-65 Compared to 1 9 5 5 - 6 0 — I n f o r m a t i o n Source*
Size Comparison Among Respondents
(Dollar amounts in millions)

Degree of
characteristic

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Holdings

38.0

95.2

Activity

34,967

38.7

260.9

172,650

38.7

1,392.3

Holdings

1,655

4.7

165.5

Activity

8,669

9.6

866.9

Assets

18,745

4.2

1,874.5

Holdings

Better

13,335

20,134

57 o 3

110.6

Activity

46,665

51.7

277.7

254,791

57,1

1,481.3

Assets

Worse

About the same

Assets

*

Question 14

Statistical significance:

The averages for the various size groupings were not
statistically different at the 10 per cent significance level.




5 9

Table A-15
Changes in Selected Characteristics of Primary D e a l e r s ,
1961-65 Compared to 1 9 5 5 - 6 0 — I n v e s t m e n t Counsel*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Degree of
characteristic

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Holdings

27.1

96.8

Activity

24,925

29.4

303.9

106,248

27.8

1,379.8

Holdings

735

2.4

147.0

Activity

945

1.1

189.0

3,301

0.9

660.2

Holdings

M o r e astute

8,332

21,713

70.5

107.4

Activity

58,931

69.5

308.5

272,745

71.3

1,435.5

Assets

Less astute

Assets

About the same

Assets

*

Question 14

Statistical significance:

W i t h minor exceptions the averages for the various
groupings were not statistically different at the 10 per cent
significance level.




size

6o

Table A-16
Changes in Selected Characteristics of Primary Dealers,
1961-65 Compared to 1 9 5 5 - 6 0 — O u t l e t for Funds Through Loans or RP's*
Size Comparison Among Respondents
(Dollar amounts in millions)
Per cent
distribution of
total dollar size

16,027

54.5

136.9

Activity

48,608

57 .2

426.3

196,341

49.5

1,784.9

Holdings

1,643

5.6

117.3

Activity

9,727

11.4

694.7

Assets

29,008

7.3

2,072.0

Holdings

More important

Total dollar
size for group

Holdings

Degree of
characteristic

11,730

39.9

104.7

Activity

26,711

31.4

254.3

171,101

43.2

1,614.1

Size criteria

Assets

Less important

About the same

Assets

*

Average dollar size
per respondent

Question 14

Statistical significance:

The averages for the various size groupings were not
statistically different at the 10 per cent significance level.




6l

Table A-17
Changes in Selected Characteristics of Primary D e a l e r s ,
1961-65 Compared to 1955-60--General AttitudeSize Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

-Degree of
characteristic

Size criteria

Total dollar
size for group

Per cent
distribution of
total dollar size

Average dollar size
per respondent

Holdings
More aggressive
in soliciting
business

18,231

52.6

121.5

Activity

48,044

53.0

331,3

189,260

42.7

1,371.4

Assets

Holdings
Less aggressive
in soliciting
business

3,304

9„5

122.3

Activity

5,793

6.4

241,3

Assets

15 o 5

Holdings
About the same

68,857

13,111

37 .8

89 0 1

Activity

36,784

40.6

268.4

184,781

41.7

1,358.6

Assets

Question 14

Statistical

significance:

The averages for the various size groupings were not
statistically different at the 10 per cent significance level.




2 ,754„2

Table A-18
Institutional Investor Activity in Selected Short Term Financial Instruments,
1961-mid 1965 vs. 1955-1960—Finance Company Commercial Paper*
Size Comparison Among Respondents
(Dollar amounts in millions)

Activity

Total dollar
size for group
Activity
Holdings

Per cent distribution of
total dollar size
Holdings
Activity
Assets

Assets

Average dollar size
per respondent
Holdings
Activity
Assets

No activity

16,632

36,481

122,928

45.4

39.4

27.4

89.4

209.6

749.5

Increased

17,122

47,054

285,390

46.7

50.8

63.6

133.7

382.5

2,320.2

Decreased

589

2,144

6,236

1.6

2.3

1.4

53.5

268.0

566,9

2,293

6,940

34,140

6.3

7.5

7.6

81.8

247.8

1,365.6

About the same
*

Question 19

Statistical significance (Per cent levels):




Between "Increased" and:
Size criteria

"No activity"

Holdings

4

Activity

8

Assets

1

"Decreased"

"About the same"
1

1

6
-

6

Table A-4a
Institutional Investor Activity in Selected Short Term Financial Instruments,
1961-mid 1965 v s . 1955-1960--0ther Commercial Paper*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )
Total dollar
size for group
Holdings
Activity

Activity

Assets

Per cent distribution of
total dollar size
Holdings
Activity
Assets

Average dollar size
Holdings

Activity

Assets

N o activity

20,659

47,421

199,112

57.8

52.4

45.7

96.0

235.9

1,031.6

Increased

11,194

32,634

189,963

31.3

36.0

43.6

138.1

423.8

2,532.8

Decreased

1,310

3,860

19,541

3.7

4.3

4.5

81.8

296.9

1,221.3

A b o u t the same

2,610

6,615

27,289

7.3

7.3

6.3

93.2

236.2

1,049.5

*

Question 19

Statistical

significance:

The averages for the various activity groupings were not statistically different
at the 10 per cent significance level.




Table A-22
Institutional Investor Activity in Selected Short Term Financial Instruments,
1961-mid 1965 v s . 1 9 5 5 - 1 9 6 0 — O t h e rShortTermInvestment*
Size Comparison Among Respondents
(Dollar amounts in millions)

Activity

Total dollar
size for group
Holdings
Activity

Assets

Per cent distribution of
total dollar size
Holdings
Activity
Assets

Average dollar size
Holdings

Activity

Assets

No activity

21,4l)U

40,467

206,899

61.3

45.2

48.3

92.6

186.4

1,004.3

Increased

10,847

39,780

187,031

31.1

44.5

43.7

146.5

552.5

2,562.0

Decreased

646

3,015

13,483

1.8

3.4

3.2

71.7

430.7

1,498.1

2,031

6,212

20,581

5.8

6.9

4.8

112.8

326.9

1,210.6

About the same

*

Question 19

Statistical significance (Per cent levels):




Size criteria
Holdings 1
Activity 6
Assets 1

Between "Increased" and "No activity"

Table A-21
Institutional Investor Activity in Selected Short Term Financial Instruments,
1961-mid 1965 v s . 1955-1960--Short Term Municipal Bonds*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Activity

Total dollar
size for group
Holdings
Activity

Assets

Per cent distribution of
total dollar size
Activity
Assets
Holdings

Average dollar size
per respondent
Holdings
Activity
Assets

N o activity

16,442

28,541

207,201

46.1

31.4

47 .7

88.3

164.9

1,248.1

Increased

12,640

49,450

154,008

35.4

54.4

35.5

138.9

568.3

1,656.0

Decreased

2,688

3,074

22,449

7,5

3.4

5.2

99.5

113.8

1,069.0

About the same

3,933

9,809

50,342

11.0

10.8

11.6

112.3

288.5

1,525.5

*

Question 19

Statistical significance (Per cent levels):




Size criteria

Between "Increased

11

Holdings

5

Activity

1

Assets

M

and N o activity"

Table A-22
Institutional Investor Activity in Selected Short Term Financial Instruments,
1961-mid 1965 v s . 1 9 5 5 - 1 9 6 0 — O t h e r Short Term Investment*
Size Comparison Among Respondents
(Dollar amounts in millions)

Activity
No activity

Total dollar
size for group
Activity
Holdings

Assets

Per cent distribution of
total dollar size
Holdings
Activity
Assets

Average dollar size
per respondent
Holdings
Activity
Assets

6,060

13,324

57,733

21.9

23.7

16.5

58.2

140.2

620.7

Increased

18,340

35,219

249,746

66.2

62.5

71.4

129.1

262.8

1,936.0

Decreased

1,451

4,407

27,715

5.2

7.8

7.9

111.6

367.2

2,131.9

About the same

1,835

3,386

14,452

6.6

6.0

4.1

96.5

178.2

850.1

*

Question 19

Statistical significance (Per cent levels):




Size criteria

Between "Increased" and "No activity"

Holdings

1

Activity

6

Assets

1

6 7

Table A-23
Institutional Investors Bidding in Treasury Bill Auctions with
View to Quick Resale 1961-mid 1965 Compared to 1955-60*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

Per cent
distribution of
total dollar size

9,736

37.59

162.2

Activity

46,578

57.90

803.0

118,209

36.31

2,110.8

Holdings

4,975

19.21

121.3

Activity

11,967

14.88

341.9

Assets

64,366

19 „ 77

Holdings

M o r e active

Total dollar
size for group

Holdings

Degree of
characteristic

11,190

43.20

79.9

Activity

21,898

27.22

167.1

142,961

43.92

1,108.2

Size criteria

Assets

Less active

About the same

Assets

Average dollar size
per respondent

Question 6

Statistical significance:

With minor exceptions, the averages for the various size
groupings were not statistically different at the 10 per cent
significance level.




1,650.4

68

Table A-24
Institutional Investors Riding the Yield Curve in Treasury Bills
1961-mid 1965 Compared to 1955-60*
Size Comparison Among Respondents
(Dollar amounts in millions)
Per cent
distribution of
total dollar size

9,475

33.17

112.7

Activity

41,614

49.12

507.4

108,860

30.72

1,413.7

Holdings

3,960

13.86

116 ,4

Activity

7,342

8.67

262.2

Assets

68,319

19.28

2,070.2

Holdings

More active

Total dollar
size for group

Holdings

Degree of
characteristic

15,1.33

52.97

102,2

Activity

35,769

42.22

257.3

177,156

50.00

1,322.0

Size criteria

Assets

Less active

About the same

Assets

*

Average dollar size
per respondent

Question 6

Statistical significance:

The averages for the various size groupings were not
statistically different at the 10 per cent significance level.




6 9

Table A-25
Institutional Investors Arbitraging in Coupon Issues
1961-mid 1965 Compared to 1955-60*
Size Comparison Among Respondents
(Dollar amounts in m i l l i o n s )

32.26

136.2

Activity

40,045

47.31

588.8

82,546

24.59

1,353.2

4,084

14.02

94.9

Activity

15,784

18.65

438.4

Assets

48,991

14.59

1,194.9

Holdings
.About the same

9,399

Holdings
Less active

Per cent
distribution of
total dollar size

Assets

M o r e active

Total dollar
size for group

Holdings

Degree of
characteristic

15,653

53.72

94.2

Activity

28,807

34.04

184.6

204,196

60.82

1,334.6

Size criteria

Assets

Average dollar size
per respondent

Question 6

Statistical significance:

The averages for the various size groupings were not
statistically different at the 10 per cent significance level.




70

Table A-26
Coinmercial Bank Trading in Coupon Issues to Increase the After Tax
Yield of Their Portfolios 1961-mid 1965 Compared to 1955-60*
Size Comparison Among Respondents
(Dollar amounts in millions)

5,791

49.97

180.9

Activity

20,888

46.80

696.2

51,815

46.25

1,671.4

Holdings

2,219

19.15

123.2

Activity

8,435

18.90

527.1

21,662

19.34

1,203.4

Holdings

3,579

30.88

149.1

Activity

15,313

34.31

638.0

Assets

Less active

Per cent
distribution of
total dollar size

Assets

More active

Total dollar
size for group

Holdings

Degree of
characteristic

38,551

34.41

1,606.2

Size criteria

Assets

About the same

*

Average dollar size
per respondent

Question 6

Statistical significance:

The averages for the various size groupings were not
statistically different at the 10 per cent significance level.




Table A-27
Investor Activity in Repurchase or
Resale Agreements in Selected Financial Instruments*
Size Comparison Among Respondents
(Dollar amounts in millions)
Total dollar
size for group
Holdings
Activity
Assets

Financial instrument

Per cent distribution
of total dollar size
Holdings
Activity
Assets

Average dollar size
per respondent
Holdings
Activity
Assets

Direct U . S . Government
securities
Yes

26,086

81,258

341,137

68.0

85.4

74.2

123.6

398.3

1,776.7

No

12,297

13,905

118,431

32.0

14.6

25.8

72.3

90.8

789.5

Yes

14,141

52,879

226,789

39.2

58.2

51.1

134.6

513.3

2,290.7

No

21,929

38,031

216,733

60.8

41.8

48.9

90.6

170.5

1,017.5

Yes

1,647

10,593

34,719

4.8

12.1

8.4

96.8

662.0

2,169.9

No

32,870

77,227

380,581

95.2

87.9

91.6

106.7

269.0

1,383.9

Federal Agency Issues

Municipal Securities

*

Question 20

Statistical significance:
The averages for those investors who entered into repurchase or resale agreements in
direct U . S . Government securities and Federal Agency issues differed in size from those who did
not use these techniques, with most of the differences significant at the 1 per cent level, and
all the differences significant at least at the 6 per cent level.



Table A-28
1

Impact of Advance Refunding Technique on Investors Activity in the
Market for Outstanding U . S. Government Issues*
Size Comparison Among Respondents
(Dollar amounts in millions)

Size
criteria

Total dollar
size for group
Market activity
No
change
Increased Decreased

Per cent distribution
of total dollar size
Market activity
No
Increased Decreased change

Total

Total

Average dollar size
per respondent
Market activity
No
Increased Decreased
change

Total

Holdings

9,353

8,062

20,461

37,876

24.7

21.3

54.0

100

119.9

158.0

83.8

101.5

Activity

29,162

25,504

39,954

94,620

30.8

27.0

42.2

100

388.8

542.6

175.2

270.3

105,314

81,974

269,119

456,407

23.1

18.0

59.0

100

1,504.4

1,639.4

1,240.1

1,354.3

Assets
*

Question 16

Statistical significance (Per cent levels):




1

Between "No change in market activity ' and:
Size criteria

"Decreased market activity"

"Increased market activity"

Holdings

5

9

Activity

6

2

Assets

Table A-29
Institutional Investors' Attitudes Toward Treasury Advance Refundings in
Relation to Their Investment Operations*
Size Comparison Among Respondents
(Dollar amounts in millions)

Size criteria

Very
favorable
and
favorable

Total dollar
size for group
Very
unfavorable
and
Neutral unfavorable

Total

Per cent distribution
of total dollar size
Very
Very
favorable
unfavorable
and
and
favorable Neutral unfavorable

Total

Very
favorable
and
favorable

Average dollar size
per respondent
Very
unfavorable
and
Neutral unfavorable

Total

Holdings

21,523

15,079

1,581

38,183

56.4

39.5

4.1

100

113.5

86.6

121.6

101.5

Activity

49,268

37,881

7,921

95,070

51.8

39.8

8.3

100

281.5

226.8

660.1

268.5

241,812

201,614

15,042

458,468

52.7

44.0

3.3

100

1,483.5

1,244.5

1,157.1

1,356.4

Assets

*

Question 17

Statistical

significance:
The averages for the various size groupings were not statistically different at the 10 per cent
significance level.




Table A-4a
Respondents Affected by Official Operations in Coupon Issues and Ability to Conduct Transactions in the
Government Securities Market Decreased vs. All Other Respondents*
S^ize Comparison Among Respondents
(Dollar amounts in millions)

Size criteria

Total dollar size for group
Affected
and ability
to conduct
transactions
All
Total
decreased
others

Per cent distribution
of total dollar size
Affected
and ability
to conduct
transactions
All
Total
decreased
others

Average dollar size per respondent
Components of "all others"
Affected
Investment operations
and ability
affected and ability to
to conduct
conduct transactions
Investment
transactions
Not
All
operations
decreased
Increased
affected
not affected
others

Holdings

37,687

6,965

30,722

100

18

82

199.0

91.98

125.6

87.2

89.4

Activity

94,088

29,490

64,598

100

31

69

867.3

206.38

499.1

238.7

169.7

436,578

79,260

357,318

100

18

82

2,264.5

1,207.16

1,369.9

1,244.4

1,183.9

Assets

*

Question 18

Statistical significance (Per cent levels):




Size criteria

Between "Decreased" and "All others"

Holdings

4

Activity

2

Assets

10

Table A-31
Duration of Influence of Official Activity in Coupon Issues
on Institutional Investors' Judgment of the Course of Interest Rates*
Size Comparison Among Respondents
(Dollar amounts in millions)

Size criteria

Few days

Total dollar
size for group
Few weeks
Few months

Per cent distribution
of total dollar size
Few days Few weeks Few months

Average dollar size
per respondent
Few days
Few weeks
Few months

Holdings

6,797

2,763

30

50

20

157.9

151.0

83.7

Activity

16,861

26,037

8,140

33

51

16

674.4

591.7

271.3

Assets

*

4,106

51,696

81,383

35,711

31

48

21

2,154.0

1,849.6

1,151.9

Question 18

Statistical significance:
The averages for the various size groupings were not statistically different at the
10 per cent significance level.




Budget Bureau No. 55-6604
June 1966

U. S. TREASURY-FEDERAL RESERVE QUESTIONNAIRE FOR
INSTITUTIONAL INVESTORS
IN
U. S. GOVERNMENT SECURITIES

Submitted by:

Name of institution

Location

City

Stat6

Signature of officer

Return to:




FEDERAL RESERVE BANK OF NEW YORK

Financial and Trade Statistics Division, Room 513
New York, N. Y. 10045

District

Stat©

Code number

U. S. Treasury-Federal Reserve Questionnaire for Institutional Investors
in U. S. Government Securities
(Please give dollar figures, where requested, to the nearest million dollars)
1. As of December 31, 1965, the dollar amount of your
institution's holdings (at par) of U. S. Government
securities amounted to:
Held under
resale
agreement

Held
outright*

Total
$
Bills
Notes and bonds:
Maturing in 1966
Maturing in 1967
thru 1970
Maturing in 1971
or later

$

acquired under resale or repurchase agreements)
approximately how many securities (par value) ?
Direct U. S.
Gov't obligations

Total
$
Bills
Notes and bonds:
Maturing in 1965
and 1966
Maturing in 1967
thru 1970
Maturing in 1971
or later

Agency

isssues

$

* Held without any contract calling for their resale to a
specified party at a later date.

2. As of December 31, 1965, the dollar amount
institution's holdings (at par) of Federal
securities amounted to: (A list of Federal
issues, as defined for this study, outstanding
ber 31, 1965, is attached.)

of your
Agency
Agency
Decem-

Held under
resale
agreement

Held
outright*

Total
$
Maturing in 1966
Maturing in 1967
thru 1970
Maturing in 1971
or later

$

3. During 1965 your institution (or another institution,
such as a bank, acting in your behalf) acquired
approximately how many securities directly from
the Treasury or a Federal Agency through allotment or exchanges?

$

Bills

Agency

$

Notes
Bonds

Maturing in 1965
and 1966
Maturing in 1967
thru 1970
Maturing in 1971
or later

4. During 1965 your institution redeemed at maturity
approximately how many securities for cash ?
Direct U. S. Gov't obligations

Bills
Coupon issues

Agency

isssues

$

5. During 1965 your institution sold or purchased outright in the market (i.e., not including securities



c. Trading to take advantage of changing price
relationships between different coupon securities
(arbitraging)
•

more active •

less active •

about the same

less active •

about the same

d. Other (specify)
•

more active •

issues

Others

$

a. Bidding in Treasury bill auctions with view to
quick resale
• more active • less active • about the same
b. Buying longer Treasury bills in the market and
selling them before maturity to increase yield by
riding the yield curve
• more active • less active • about the same

* Held without any contract calling for their resale to a
specified party at a later date.

Direct U. S. obligations

6. During the years 1961—mid-65, in terms of dollar
volume was your institution more active, or less
active in the market for outstanding issues than it
was in the period 1955 through 1960 in the following
investment activities:

For commercial banks only:
e. Trading in coupon securities to increase the aftertax more active • portfolio
• yield on your less active • about the same
7. In your outright market transactions in U. S. Government securities, approximately what percentage
of your transactions were with:
Percentage MI
1961
1965

a. Primary dealers in such securities,
including dealer banks (see attached list)
b. Other banks (including use of
banks as agents)
c. Other securities firms

d. Direct transaction with former
owner or new owner (other than
any of the above)
e. Other (specify)
If there have been changes since
1961, please explain briefly

Treasury
Treasury
bills

a
b.
c
d.
e
f.
g
h.
i

coupon

Under 5 years

issues

Agency
issues

Over 5 years

a.
b.
c.
d.
e.
f.
g.

a.
b.
c.
d.
e.
f.
g.
h.
i.

a
b
c
d
e
f
g
h
i

h.
i.

8. If you trade with primary dealers in Government

securities, how many firms did you trade with
in 1965

in 1961
Coupon issues
Bills

Only one
dealer . . .
Two dealers
Three to five
dealers . .
Six to ten
dealers . .
More than
ten dealers

•
•
•
•

TJnder
5 yrs.

•
•
•
•
•

Over
5 yrs.

•
•
•
•
•

Coupon issues

•

Bills

Under
5 yrs.

•

•

•

•

•

•

•

•

•

Over
5 yrs.

12. During the period of general stability in interest
rates that prevailed from 1961 through mid-1965,
did you find that in comparison with 1955-60 the
size of transactions that primary dealers were
usually willing to undertake as principals in:

•

•
•
•
•

•

9. If the number of dealers with whom you trade has
increased or decreased, please explain the reason for
the change.

10. Which of the following are important in determin-

Treasury
bills

Increased by up
to 20%
Increased by more
than 20%
Decreased by up
to 2 0 %
Decreased by more
than 20%
Remained about
the same

•
•
•
•
•
•
•

•

a. Other banking or financial business with
primary dealer or bank
b. Size of transaction primary dealer will
usually undertake on quoted markets
c. Primary dealer's bid or offer prices in past
transactions tended to be best quotation
d. Importance of primary dealer as source of
investment counsel
e. Importance of primary dealer as outlet for
funds through repurchase agreements
f. Speed at which primary dealer completes
transactions
g. Primary dealer contacts you
h. Primary dealer also provides trading facilities in a broad range of obligations other
than Government securities
i. Other (specify)

11. Bank by number (1, 2 and 3) the three most important factors in Question 10 in order of the importance you attached to them for transactions in:



Agency
issues

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

13. In the period since mid-1965, as compared with 1961
—mid-1965, have you found that the size of transactions that primary dealers were usually willing to
undertake in:

ing with whom you do business in Government securities (check only those of considerable importance) :
•

Treasury
coupon issues
Under
Over
5 years
5 years

Treasury
bills

Increased by up
to 20%
Increased by more
than 20%
Decreased by up
to 20%
Decreased by more
than 20%
Remained about
the same

Treasury
coupon issues
Under
Over
5 years
5 years

Agency
issues

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

14. In the period since 1961, how have you found the
primary dealers with whom you deal in regard to
the following as compared with 1955-60:
a. Competitiveness

•

More
• Less
• About the same

b. Information
source

•

Better
• Worse
• About the same

c. Investment
counsel

•

More
• Less
astute
astute
• About the same

d. Outlet for funds
through loans
or RP's
•

More
• Less
important
important
• About the same
e. General attitude • More aggressive in
soliciting business
• Less aggressive in
soliciting business
• About the same

15. As an investor, how have you participated in the
advance refundings offered by the Treasury in the
period 1960-1965:
(List of advance refundings is attached.)
a. Did you buy or sell "rights", or exchange rights
for securities offered by the Treasury, during
any of the advance refundings held in recent
years from the date of the Treasury's announcement through the delivery date of the new
securities ?
Yes
No
b. If your answer is yes, in how many advance
refundings did you:
Sell 4 * rights'' to the new securities
Purchase 44 rights'' to the new securities
Purchase "when-issued" securities
Sell "when-issued" securities
Exchange "rights" which were held
prior to the announcement date
16. How has the Treasury's use of the advance refunding technique affected the degree to which your firm
has participated in the market for outstanding
U. S. Government issues?
• Increased market activity in outstanding
issues
• Decreased market activity in outstanding
issues
• No change in amount of transactions undertaken traceable to the use of the advance
refunding technique

b. If answer to "a" is yes, has such official activity
tended to
(1) increase
, decrease
or left unaffected
your ability to conduct swap
or other transactions in the market
(2) influence your judgement of the course of
interest rates over the next few days
,
next few weeks
or next few
months
(3) other influence (please specify)
19. How did your activity in any of the following
compare in 1961—mid-1965 with your activity in
1955-60?
No
activity

a. Finance company
commercial paper
b. Other commercial
paper
c. Bankers'
acceptances . . . .
d. Short-term
municipal bonds
e. Other short-term
investment
(please specify)

Increased

Decreased

About
the
same

•
•
•
•

•
•
•
•

•
•
•
•

•
•
•
•

•

•

•

•

20. Does your firm enter into repurchase or resale
agreements with dealers, banks, or others in:
Yes

No

•
•
•
•

•
•
•
•

Direct U. S. Government securities
Federal Agency issues
Municipal securities
Other (please specify)

21. Please make any comments you would like to about
the functioning of the Government securities market
as it relates to your investment operations (including any suggestions you may have for improving
its operations).

17. How do you regard Treasury advance refundings
in relation to your investment operations:
• Very favorably
• Favorably
• Neutrally
• Unfavorably
• Very unfavorably
18. Have purchases of Treasury coupon securities in
the open market by the Federal Reserve System to
supply bank reserves, or by the U. S. Treasury trust
accounts for their investments tended to affect your
investment operations ?
a. Yes
No




(If you need additional space, please attach page(s)
to this form.)
22. If you have a published balance sheet and income
statement for December 31, 1965 or the end of fiscal
year closest to that date, would you please enclose
a copy with your answers to the questionnaire.