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Treasury-Federal Reserve Study
of the
Government Securities Market
PART II
Factual Review for 1958
NOTE.—The various tables in this study, since they combine data
from different study surveys and other sources, do not always reconcile as to detailed figures.
Published in February 1960
Foreword
Early last spring the United States Treasury Department and the
Federal Reserve System initiated a joint inquiry into the functioning of the Government securities market. It was hoped that the
study would point the way toward improvement in the market's
mechanisms and to the prevention of speculative excesses in the
market.
The objectives of the current inquiry differ from those of the
1952 examination of the market's functioning conducted by the
Federal Open Market Committee. The 1952 study had focussed
upon the role of the Federal Reserve Open Market Account in
the Government securities market, with the effects of the Federal
Reserve open market operations on the market's performance and
also on money markets generally, and with procedures and practices in Federal Reserve open market operations that would help
in carrying out appropriate monetary policies.
Part I of the study, issued in July 1959, summarizes the informal
consultations conducted by the Treasury-Federal Reserve study
group with individuals associated with or informed about the functioning of the market. These consultations were designed to obtain
a broad cross section of opinion on underlying forces shaping activity and price changes in the Government securities market during
the period of economic recession-revival 1957-58, as a basis for possible improvement of the mechanisms and functioning of the market.
We wish to express our sincere thanks to all who cooperated either
by personal discussion or by making contributions through written
communication. A copy of the outline for study guidance, together with a list of participants in the consultation program, is
included in Part I of the study beginning on page 54.
Also published in Part I of the study is a special technical
report concerned with the question whether an organized exchange or a dealer market might better serve the public interest in effectuating the purchase and sale of Government securi-
iii
ties. This question was raised in the hearings of the Joint Economic
Committee earlier this year on the President's Economic Report.
The objective of this special study is to illuminate the central issues
in this important question with a view to facilitating further consideration of it.
The present volume, Factual Review for 1958, Part II of the
study, is an analytical report on the performance of the Government
securities market in 1958, with special reference to the build-up
in market speculation prior to midyear and its liquidation during
ensuing months of declining securities prices and rising interest
rates. This report is based on a group of special statistical surveys
covering major lenders to, or participants in, the Government securities market, including larger commercial banks, nonfinancial
business corporations, savings banks and insurance companies,
agencies of foreign banks, New York Stock Exchange members,
and Government securities dealers. The almost universal cooperation received in response to the survey requests has been especially
helpful.
Suggestions received through informal consultations with market participants and observers, together with the findings from the
factual record of last year's market performance, indicated the need
for certain supplementary studies of specialized and technical focus.
Although these studies are primarily conceived of as working documents for the use of Treasury and Federal Reserve officials, they are
released as Part III of the over-all study.
ROBERT B . ANDERSON,
Secretary of the Treasury.
W M . M C C . MARTIN, JR.,
Chairman, Board of Governors
of the Federal Reserve System.
WASHINGTON, D . C . ,
February 1, 1960.
iv
Contents
Page
FOREWORD
1. SCOPE OF STUDY
iii
1
2 . BACKGROUND OF TREASURY'S JUNE 1 9 5 8 FINANCING. . .
3
Interest Rates in 1957-58
Economic Background
Financial Background
Private demands for funds
Treasury
financings
Supplies of funds
Commercial bank participation in market
Participation of dealers
Interest Rate Expectations on Eve of June Financing. .
3
6
8
9
10
14
15
18
21
3 . SETTING OF TREASURY'S JUNE FINANCING
Mounting Interest in June Refunding
Background Factors
Business outlook and interest rate expectations
Availability of funds
Role of money brokers
Size of May Build-up in "Rights"
Existing ownership data on "rights"
Commercial bank holdings
Corporate holdings of "rights"
Holdings of New York Stock Exchange firms in
"rights"
Government securities dealers' transactions in
"rights"
Credit extended against "rights"
4 . REFUNDING BUILD-UP AND ITS RESULTS
Intensification of Credit Expansion
Market Trading during Exchange
23
23
24
25
28
31
33
33
34
35
36
37
37
40
40
42
v
Page
Results of June Exchange
Investor Allotments—Market Interpretation
Role of Repurchase Agreements
Role of Forward Delivery Contracts
Summary Comment on Allotments
5 . CREDIT AND CREDIT STANDARDS IN JUNE FINANCING . . .
s
Credit Financing of 2 /s Per Cent Bonds
Credit Standards in June Refunding
Borrower-lender relationships
Adequacy of margins
Margins on collateral loans. . .
Margin arrangements in repurchase agreements. . . .
44
45
47
50
51
52
52
55
56
58
58
61
6 . OTHER CREDIT FINANCING OF GOVERNMENT SECURITIES
IN JUNE
Speculative Commitments in Other Bonds
Technical Strain in Market.
Corporate liquidation of Government securities positions
Positions of Government securities dealers
Build-up in bank lending on Government securities. .
Dealer borrowing
65
65
66
69
70
71
72
7 . POST FINANCING LIQUIDATION AND FINDING A N E W MARKET LEVEL
Start of Market Decline
Shift in Market Expectations
Factors Affecting the Decline
Technical weakness of market
Treasury intervention
August refunding and Mid-East crisis
Treasury cash borrowing requirements
.
Renewal of inflation psychology
Effects of Liquidation on Investor Positions, Credit Use,
and Trading Volume
Liquidation of positions in 2% per cent bonds . . . .
Nondealer trading activity
vi
74
74
76
78
78
80
81
83
84
85
85
87
Page
5
Financing of 2 /s per cent bond in market decline . .
Financing of all Government securities
Positions of brokers and dealers
Trading volume
End of Market Liquidation
8 . SUMMARY OF FINDINGS
Highlight Findings and Interpretations
More General Lessons and Problems
88
89
92
93
96
97
97
101
Appendix A—Summary of Replies by Commercial Banks. . 103
Appendix B—Summary of Replies by Nonfinancial Business
Corporations
126
Appendix C—Summary of Replies by Government Securities
Dealers
135
Appendix D—Summary of Replies by Member Organizations
of New York Stock Exchange
150
Appendix E—Summary of Replies by Domestic Agencies of
Foreign Banking Corporations
156
vii
1. Scope of Study
During the period of recession and recovery in economic activity
in 1957-58, market interest rates and prices on United States Government securities underwent marked cyclical variation. Although
the general contour of the movement in yields and prices was
similar to that in the previous recession and recovery of 1953-55,
both the rapidity and the amplitude of the changes were greater in
the recent cycle. Moreover, the sudden turnabout in interest rates
in mid-June of 1958, following a Treasury financing operation,
was accompanied by acute market pressures of near-crisis proportions. The downturn in bond prices—a normal aspect of the
cyclical recovery that began in the late spring—was accentuated
by liquidation of sizable speculative positions in Government securities, in many cases credit financed, which had been built up
prior to the Treasury's June financing. As interest rates rose during the summer and fall of 1958, the Government securities market
remained unsettled and unreceptive to new issues of securities, even
those of short maturity.
These developments, affecting the market in which the obligations of the United States Government are issued and traded,
aroused considerable concern among the general public and the
financial community as well as among officials of the Government
and members of Congress. In these circumstances, the Treasury
and the Federal Reserve, both of which have a vital and continuing
interest in the Government securities market, undertook exploratory
investigations which led to the study of which this report is a part.
The purpose of the study was two-fold: (1) to illuminate the basic
causes of instability in the Government securities market, insofar as
they grew out of market processes and mechanisms, with a view to
ascertaining what might be done to mitigate such instability and
prevent future speculative excesses, and (2) to re-examine in broad
perspective the general organization and functioning of the market
1
with the object of finding out whether and how they might be improved in the public interest.
The present part of the study is a factual analysis of the performance of the Government securities market from late 1957 to late
1958, with particular emphasis on the period surrounding the
Treasury's financing in June 1958. Although this emphasis invites the danger of exaggerating the lasting significance of the mid1958 episode, a thorough analysis of that particular period of
rapid change would, it was hoped by Treasury and Federal Reserve
officials, also help to clarify the normal conduct of and relationships among the various participants in the market.
The present report first reviews economic and financial developments from the autumn of 1957 to June 1958, thus providing the
background setting for the period of acute market pressures in
June. It then undertakes a more detailed analysis of the factors
in the build-up and culmination of speculative pressures in the June
financings. There follows an examination of the period of decline
and liquidation in the summer. The report concludes with a summary of findings.
Because many of the relevant facts on market developments in
1957-58 were not known on the basis of existing data, this part of
the study has entailed the compilation, through special questionnaire surveys addressed to all major participants and lenders in the
market, of information on ownership of Government securities and
on the volume, sources, and terms of credit used to purchase or
carry Government securities. The present report utilizes the data
collected in these surveys. They are summarized at the end of the
reports, in five appendices, covering commercial banks, nonfinancial
corporations, Government securities dealers, member organizations
of the New York Stock Exchange, and domestic agencies of foreign
banks.
2
2. Background of Treasury's June 1958 Financing
In an advanced economy such as that of the United States, broad
swings in interest rates correspond closely with cyclical fluctuations
in general economic activity. The reason for this close relationship lies mainly in the fact that the business cycle, which is generated largely by expenditures financed heavily with credit, gives
rise to large fluctuations in demands for funds. At the same time,
the supply of funds tends to be much more stable cyclically, reflecting in part actions of the monetary authorities to help counteract the economic cycle.
By far the most important single influence on interest rate expectations, therefore, is the outlook for general business conditions.
Signs of changes in monetary policy are watched closely by participants in the Government securities market since such changes
are often interpreted as confirmations of major turns in the business situation and suggest to observers possible shifts in the balance
of pressures in the money and capital markets.
INTEREST RATES IN 1957-58
As the United States economy approached the turning point in the
cyclical upswing of 1954-57, investors and dealers in the Government securities market were alert to the possibility of reversal in
the direction of economic activity. Events during the previous
recession had provided ample evidence that market rates of interest
could be expected to move downward with general economic conditions, as a result both of changes in private demands for funds
and of shifts in monetary policy. Investor expectations were so
sensitively attuned to these relationships that on earlier occasions
during the cyclical advance of 1954-57—most notably in early
1957—interest rates had declined and bond prices had experienced
a sharp temporary upward movement set off by transient indications
3
YIELDS
AND
PRICES
ON
U.S.
GOVERNMENT
SECURITIES
NOTE.—For long-term bonds, yields are for issues due or callable in 10 years or more
and prices are calculated from yields on basis of an assumed 3 per cent 20-year bond.
of a slowdown or possible reversal in the pace of business activity.
Doubts about the business outlook reappeared during the summer
and autumn months of 1957, as activity in durable goods manufacturing lines reached peaks and began to turn down. General agreement that the economy had entered a recession crystallized in midNovember when Federal Reserve discount rates were reduced from
3V2 to 3 per cent. This action was widely interpreted in market
circles as the forerunner of a series of monetary and other antirecession measures.
Market reaction to the discount rate reduction and the shift in
expectations it created was immediate and strong. Yields on
marketable securities in all maturity categories dropped sharply
over the following weeks as the accompanying chart shows. Between mid-November and mid-December, prices of most longer
term Government bonds rose 5 points or more. By mid-January
they had advanced an additional 2 points. This represented an
average increase in price of about 8 per cent in two months.
After mid-January the pattern of advance in Government securities prices changed. Prices of long-term bonds fell off from their
temporary peaks in mid-January and fluctuated in a narrow range
over the next six weeks or so. There followed another sharp rise
in prices of approximately 3 points until the third week in April,
at which time most longer term bonds touched their peaks for
1958. At such levels, prices of long-term bonds were generally
about 10 per cent higher than in mid-November. After a moderate
sell-off from these levels, longer term bond prices moved up once
again in May and early June, but they did not reattain their April
peaks. As a result of these price movements, longer term market
yields followed a rather irregular downward path.
Shorter term market yields continued to decline sharply, however, and reached their low points at the end of May or early June.
As a result, the spread between yields on long- and short-term securities widened substantially in April and May. This widening
of the yield spread, illustrated in the accompanying chart, was one
of several factors contributing to the expectation that long-term
rates would decline further, following the June financing.
This expectation was not realized. In the second week of June
5
YIELD
CURVES
-
U.
S.
GOVERNMENT
SECURITIES
Pmr
Ytari
t »nt
to maturity
market interest rates began to rise and the pace of advance quickened in late June and July, as will be discussed in detail in later
sections of this report. By October, long-term yields had exceeded
the peak levels of late 1957 and after a short-lived downturn moved
onto new high ground by the end of the year. The advance in
intermediate- and short-term yields lagged, however, in contrast
to 1954-55 when short-term market rates surpassed their 1953
peaks earlier than did long-term rates, and even at the end of 1958
were still markedly below their 1957 peak levels.
ECONOMIC BACKGROUND
Review of the economic and financial developments that influenced
actual and expected interest rate movements will help to bring out
factors that set the stage for the bond market crisis in June and
July and its aftermath. The downswing in output and employment
that began in the early autumn of 1957 followed a three-year period
of generally increasing economic activity and expenditures at slowly
rising prices. At various times during that three-year period, outlays by each of the major components of the total spending stream—
households, businesses, governments, and foreign nationals—had
risen to boom levels.
6
By autumn of 1957, none of the major economic sectors appeared to be poised for further significant increase. Some of them
—notably, business investment spending, defense commitments,
and consumer purchases of autos—had turned down. As new
orders fell off, indications of reversal came to be felt by many businesses. Inventory accumulation policies were first moderated, then
reversed. The result was that inventory liquidation began and
became heavy in the fourth quarter of 1957.
Production declined rapidly beginning in October, especially
in the durable goods sector. Industrial output fell 8 per cent from
August through December, and a further 5 per cent in the first four
months of 1958. Employment and hours of work declined accordingly, and by the spring of 1958 unemployment had increased to
more than 5 million, or double the average number of unemployed
in 1956.
The decline in production was sharper in the 1957-58 recession
than in the two previous postwar recessions. Many economic observers held the view that this recession might involve much more
basic adjustments than the earlier postwar contractions since industrial capacity had been built up at a considerably faster rate than
production during the postwar period as a whole. The moderate
character of the 1948-49 and 1953-54 recessions, moreover, increased the likelihood in the minds of some observers that the decline which began in late 1957 would be long and severe.
The fact that economic recession from the autumn of 1957 to
midspring 1958 involved heavy reduction in plant and equipment
outlays (as well as more rapid inventory liquidation than in the two
previous recessions), together with the speed of the decline, seemed
to support the view that the recession was likely to be deeper and
more protracted than anything the United States had experienced
since the 1930's. This in turn had much to do with the build-up
of expectations that interest rates would remain on a declining trend
for some period of time.
From the viewpoint of the Government securities market, another important feature of the recession was that it was the most
publicized and widely analyzed recession in United States history.
Technical statistics on production, unemployment, and business
7
plans to spend for plant and equipment were highlighted in newspaper headlines and discussed prominently by radio and television
commentators. Beginning in early 1958 and continuing through
the spring months, various proposals for tax reduction and other
additional antirecession measures also received wide public discussion, as did each of the major actions of the Federal Reserve to
promote monetary ease.
As it turned out, market expectations regarding a prolonged recession were not justified. To the surprise of most observers, April
marked the low point of the recession, although this was not clear
until later—at least six weeks to two months later. Production
rose rapidly after April and by early 1959 surpassed earlier peak
levels.
At the nadir of recession in the spring of 1958, and especially at
the time of the Treasury financings in June, the view was widely
held that recession would last months longer. Even among those
who might have recognized that economic activity was no longer
declining, there were few who did not expect that the achievement
of full recovery was well into the future and, therefore, that the
monetary authorities would continue for some time to pursue a
policy of active credit ease.
FINANCIAL BACKGROUND
Against the economic background briefly sketched in the previous
section, it is possible to review the factors influencing interest rates.
The factors include those affecting the underlying conditions of supply and demand in the money and capital markets as well as those
acting on expectations of market participants.
Despite the apparent severity of recession, as indicated at the
time by output and employment statistics and reported intentions
by businesses and consumers to purchase durable goods, capital
markets continued to experience surprisingly large demands for
funds. This represented in part response by borrowers to the sharp
declines in long-term interest rates that occurred in late 1957. In
the language of economists, the demand for long-term funds proved
8
to be quite elastic, and this in turn served to limit the decline in
long-term interest rates.
Private demands for funds. With the onset of recession and the
shift to inventory liquidation, the business sector of the economy
reduced its dependence on bank borrowing and, in the first half of
1958, repaid bank debt to the extent of $1.5 billion. Borrowing of a
longer term nature, however, fell off much less than was generally
expected. Although reporting intentions to cut back plant and
TABLE 1
FUNDS RAISED IN CAPITAL MARKETS
1
[In billions of dollars]
Quarterly totals
Type of borrowing
Corporate bonds and stock
State and local govts
Foreign and interntl. inst
Mortgages
Subtotal
U. S. Treasury
Total
1958
1957
1
2
3
4
1
2
3.4
1.8
.2
5.6
3.1
1.7
.2
6.2
2.9
1.5
.1
6.4
3.0
2.0
.1
6.0
3.1
2.3
.3
5.3
2.6
2.2
.5
6.4
11.0
.0
11.2
.3
10.9
21.9
11.1
2.2
11.0
6.8
11.7
11.9
11.0
11.5 212.8
13.3
17.8
23.6
1 Offerings of long-term securities for new capital and nonfarra mortgage recordings of $20,000 or less;
U. S. Treasury borrowings represent securities with maturities of
years or longer offered for cash
or in exchange, excluding allotments to Treasury and Federal Reserve accounts.
2 An additional $2.3 billion in 4-year notes (not included in these totals) was issued by the Treasury
in this quarter.
equipment spending, business corporations continued to offer in
the market and to place privately a substantial volume of longer
term securities. Such offerings rose slightly from the third quarter
of 1957 through the first quarter of 1958 and in the latter quarter
were less than 10 per cent below the record level of the first quarter
of 1957.
State and local governments, responding in part to the downturn
in market interest rates, which in this sector of the capital market
began in September 1957, stepped up security offerings sharply in
9
the fourth quarter of 1957, and raised them even further in the first
half of 1958. In the latter period, State and local government
offerings of securities for new capital were almost 30 per cent larger
than in the same period of 1957.
Offerings of securities by foreign governments and international
institutions also rose, as interest rates declined, from $65 million in
each of the last two quarters of 1957 to $250 million in the first
quarter and $460 in the second quarter of 1958. Mortgage borrowing, which on a seasonally adjusted basis had been declining
from 1955, continued to fall into the first quarter of 1958 and then
increased sharply. For the first six months of 1958, recordings
were in about the same volume as in the first half of 1957.
The aggregrate of these various forms of borrowing, not taking
account of Federal Government debt operations, remained stable
in the first two quarters of recession and then increased in the
second quarter of 1958. Total borrowing for these purposes was
slightly larger in the first half of 1958 than in the first half of
1957.
Thus the expectation that long-term interest rates would decline
sharply further as the result of a recession-induced reduction in
the private demand for longer term funds was not realized. Furthermore, when the weight of long-term financing by the Federal Government is added to the other demands already noted, a much larger
increase in the demand for long-term funds is evident. Total longterm borrowing in the first half of 1958 was considerably larger
than in the same period of 1957.
The demand for shorter term funds, in contrast, tended to fall
off in the course of the recession, thereby contributing to the widening of the spread between longer and shorter term interest rates.
Although the dollar volume of commercial and finance company
paper outstanding increased between October 1957 and June 1958,
as did the short-term debt of State and local governments, this was
more than offset by the reduction in outstanding Treasury securities
maturing within one year.
Treasury financings* Prior to the June financing, which is treated
in detail in a subsequent section, the Treasury undertook cash offerings and refundings in November and February and a cash offer10
ing in April. The details of these and other financings through
1958 are shown in Table 2.
TABLE 2
U . S . TREASURY FINANCING OPERATIONS
NOVEMBER 1957-DECEMBER 1 9 5 8 1
[In billions of dollarsj
Amount issued and maturity
Date
books
opened
Type
of
financing
Securities
offered
Under
1 year2
1957
Nov. 2 0 . . . .
Cash
33/4% note
3%% bond
Nov. 2 1 . . . .
Exchange
3y 4 % cert.
9.8
1958
Feb. 3 , . . .
Exchange
2%% cert.
3% bond
bond
9.8
Feb. 2 8 . . . .
Cash
3% bond
1-5
years
5-10
years
20 yrs.
& over
1.1
.7
3.9
1.7
1.5
Apr.
7....
Cash
2%% note
June
3
Cash
3M% bond
(issued 100^)
June
4....
Exchange
114% cert.
2%% bond
1.8
July 2 1 . . . .
Exchange
1%% cert.
13.5
4.0
1.1
37.4
July 2 9 . . . .
Cash
1 ¥t% T.A. cert.
3.6
Sept. 29
Cash
314% note
i W o bill
1.2
2.7
Nov. 1 4 . . . .
Cash
2.999% T. A. bill
3.0
Nov. 1 9 . . . .
Exchange
3y 8 % cert,
(issued 99.95)
3%% note
(issued 99%)
7.7
4.1
Total for cash
10.5
5.1
1.5
Total in exchange
42.6
4.1
11.2
53.1
9.2
12.7
Total
10-20
years
.7
1.1
.7
2.9
1.7
1
Docs not include net increase in regular weekly bill issue, which totaled S2.1 billion for the period.
2 Includes $1.2 billion issue of 13-month notes. •
3 During June and July 1958, $491 million of 2%*per cent bonds of 1965 were purchased by the Treasury
for retirement.
It should also be pointed out that, although the deficit of the
Federal Government was only $2.8 billion in fiscal year 1958, the
amount of marketable debt outstanding increased $11 billion. The
larger debt increase reflected a $4.8 billion reduction in nonmar-
11
ketable debt during the year and a $4.2 billion increase in the
Treasury's cash balance in addition to the $2.8 billion deficit.
In view of the rapid changes taking place in the market, the
terms of the Treasury's November 1957 refunding and cash offering involved difficult market judgments, and the announcement
was delayed for a few days. In the existing market atmosphere,
subscriptions to the new cash issues were heavy and attrition on
the certificate refunding was limited to 7 per cent of the $1.9 billion of public holdings of the maturing issue; this was the lowest
attrition rate in a refunding since March 1956.
Although priced close to the market at the time of the offering,
the initial "when-issued" trading at the close of November subscription books showed the new 3% per cent 17-year bond quoted at a
premium of 1 % points and the new 3% per cent 5-year note at a
premium of nearly % of a point. By the end of December the
new bond had increased in price by nearly 8 points. This was a
greater price rise than had occurred in outstanding securities of
comparable maturity, and provided a striking demonstration of the
profit possibilities in newly issued securities in a bull market. Likewise, subsequent Treasury issues, although priced close to market
yields on announcement dates, exhibited similar increases in price.
In February 1958 the Treasury refunded five issues (two certificates, a special bill, a note, and a bond) maturing between
February 14 and April 15, amounting in total to $16.8 billion,
of which about $10.9 billion were held by the public. In exchange,
holders were offered a 1-year certificate at 2Vi per cent, a 6-year
bond at 3 per cent, and a 32-year bond at 3V2 per cent. Investors,
other than Treasury and Federal Reserve accounts, chose to take
$4 billion of the new certificate, $3.8 billion of the six-year bond,
and $1.6 billion of the 32-year bond.
The 3V2 per cent bond of 1990 traded initially at only a small
premium on a "when-issued" basis, but by the date of issue was
quoted at a premium of more than 23A points. By the third week
in April this issue was quoted at 106%. The most comparable
outstanding issue, the 3 per cent bond of 1995, gained 5 points
over the same period.
The 6-year bond—again closely priced at announcement date—
12
was traded at a premium of just under a point on the date of issue.
By the third week in April it had risen over 3 V2 points, whereas
an outstanding bond maturing six months sooner gained about
2% points over the same period. Once again investors were
shown the extra profit potential in new issues in a rising market.
At the end of February an 8V2-year bond was offered for cash.
This issue went to a premium of more than 3V2 points over the
next seven weeks. In early April a 4-year 10-month 25/s per cent
note was offered for cash. This issue went to a premium of almost
IV2 points within two weeks, and then declined somewhat with
the rest of the market.
In early June the Treasury offered for cash a 3V4 per cent, 27year bond at lOOVi. Shortly after, in exchange for two bonds
and a note maturing June 15 and amounting in total to $9.6 billion, of which $9.1 was held by the public, the Treasury offered
a 6%-year bond at 25/s per cent and an 11-month certificate at
VA per cent. The market fate of these issues is made clear in
subsequent pages.
Between October 1957 and June 1958 (Table 3), Treasury
TABLE 3
PUBLICLY HELD U . S . GOVERNMENT MARKETABLE DEBT
B Y MATURITYI
[Par value, in billions of dollars]
Maturity 2
1 year and under
1-5 years
5-10 years
Over 10 years
Total
Oct. 31,
1957
May 31,
1958
June 30,
1958
51.0
43.3
11.3
27.1
52.4
39.9
13.7
29.2
43.9
40.0
20.5
30.2
132.7
135.2
134.6
1
Securities other than those held by Federal Reserve and U. S. Government agencies and trust funds.
2 Partly tax-exempt bonds are classified to earliest call date.
financing operations had reduced the volume of Treasury securities in the hands of the public maturing within one year by $7.1
billion; this reduction occurred entirely in June. Securities in the
1- to 5-year range declined $3.3 billion, while those maturing in 5
13
to 10 years rose $9.2 billion and those over 10 years increased
$3.1 billion. Over the same period, total Treasury marketable
debt in the hands of the public increased $1.9 billion. Hence,
there was a substantial relative decline in the market supply of
short-dated Treasury paper and a substantial rise in Treasury
paper of intermediate and longer term. In view of developments
in supplies of funds, this shift in relative supplies of investment
instruments in the Government securities market was a matter
of no little significance.
Supplies of funds. The major source of increase in the flow of
loanable funds during the recession was the commercial banking
system, whose reserves were being increased substantially by the
actions that the Federal Reserve System was taking to combat the
recession. The flow of funds to capital markets from the major
savings institutions showed only small changes for the period, as
shown in Table 4.
TABLE 4
FUNDS SUPPLIED TO CAPITAL MARKETS BY SELECTED INSTITUTIONS 1
[In billions of dollars]
Quarterly totals
Lender
Life insurance cos
Mutual savings banks
Savings and loan assns
Subtotal
Commercial banks
Total
1958
1957
1
2
3
4
1
2
1.3
.6
1.2
1.0
.4
1.3
1.2
.5
1.3
1.1
.3
.9
1.3
.8
.8
1.0
.6
1.6
3.1
—2.7
2.7
.2
3.0
1.0
2.2
3.3
2.8
2.5
3.2
6.6
.4
2.9
4.0
5.5
5.3
9.8
* Net increase in holdings of securities and mortgages.
Before the shift in monetary policy, a policy of restraint on
credit expansion had been in force, with varying degrees of intensity, for more than two years. Borrowings by member banks
from Reserve Banks had been substantial; net borrowed reserves
14
had been in the range of $4004500 million from April 1957
through September and into the early weeks of October. Federal
Reserve Bank discount rates had been raised in August to 3Vi
per cent.
In view of developing uncertainties in the economic outlook and
indications of slackening credit demands, Federal Reserve open
market operations permitted some easing in bank reserve positions in late October and early November; net borrowed reserves
declined to about $350 million in these weeks. From mid-November into the early summer, restraints on bank credit and monetary
expansion were progressively relaxed and a condition of ease was
cultivated by the active use of each of the three major instruments
of Federal Reserve policy. As a result, net borrowed reserves
gave way to free reserves over the year-end, and by March free
reserves of member banks had risen to about $500 million, at
which level they remained through July. Reserves were supplied
to the commercial banks in sufficient volume not only to offset the
reserve effects of an outflow of gold amounting to $1.5 billion in
the first half of 1958, but also to permit a very rapid expansion
in bank credit.
Commercial bank participation in market. Loans and investments of commercial banks increased over $4 billion in the final
quarter of 1957, declined seasonally by $3 billion in January,
and then rose nearly $12 billion through June, with the largest
increases occurring in April and June. Of the $12 billion increase
in bank loans and investments from October through June, about
$7 billion consisted of increases in bank holdings of United States
Government securities, $2.5 billion in holdings of other securities,
and $2 billion in loans. Most of the increase in loans was accounted
for by loans on securities.
From the end of October to the end of December 1957, when
prices of Government securities rose rapidly, bank holdings of
marketable Government securities increased only $1 billion, most
of which was in issues in the 1- to 5-year maturity area. This
reflected mainly acquisition by banks of the 3% per cent note
issued in November, of which they were allotted $663 million.
Bank holdings of Government securities maturing in 10 years or
15
longer increased only $300 million in the last two months of 1957,
about half of which represented acquisition of the 17-year bond
offered in November.
Over the next five months commercial bank holdings of Government securities increased $4.5 billion, of which $3.8 billion occurred in April. In the month of June, banks acquired $1.3
billion of Governments and increased securities loans $1 billion.
In January commercial bank holdings of Governments declined,
though by considerably less than the usual seasonal amount, and
there was little change in the maturity distribution of bank portfolios. In the February refunding, banks subscribed for $2.8 billion
of the 6-year bond and $520 million of the 32-year bond. By the
end of June commercial banks had acquired an additional $250 million of the 6-year bond and disposed of an approximately equivalent
amount of the 32-year bond. In addition to participating in the
exchange, banks acquired $800 million of other Governments in
the market in February.
Banks were allotted $676 million of the 3 per cent 8-year bond
offered for cash at the end of February and issued in early March,
and reduced bill holdings by about the same amount, with little
change in total portfolios.
In the April cash offering, commercial banks were allotted $2.5
billion of the new 4-year 10-month, 25/& per cent note. Their
holdings in the 1- to 5-year maturity area rose $3.4 billion, however, as they purchased an additional $500 million of this note
as well as other securities in the secondary market. In this month
of sharply rising securities prices, bank portfolios increased $3.8
billion.
In May bank portfolios of Governments increased by about
$300 million. Their holdings of "rights" in the June refunding,
which had declined steadily from $4.5 billion in October to $3.7
billion in April, rose $200 million in May. Banks also did some
further purchasing in the 1- to 5-year area, while reducing bill
holdings.
In June commercial banks were allotted $213 million of the
3Va per cent 27-year bond, and this was the extent of change in
their holdings of bonds maturing in more than 10 years. In the
16
refunding banks were allotted $4.6 billion of the two new issues,
some of which were exchanges for customers; of this total, $4
billion consisted of the 25/& per cent, 6-year 8-month bond. Banks
also purchased the new bond in the market, as will be discussed
below in detail.
Over the entire period from October through June, the Treasury
issued about $8.5 billion in securities to the public for cash, and
commercial banks increased their holdings of Governments by
$6.8 billion. The latter increase, it may be noted, was concentrated almost entirely at city banks. Country bank portfolios
of Government securities increased only $200 million between
October and June. About two-thirds of commercial bank acquisitions of Government securities from October through June
were in the form of allotments at times of new Treasury issues,
and one-third ($2.5 billion) represented net purchases in the secondary market.
Both time deposits and demand deposits of banks grew at an
unusually high rate from October through June. The rise in demand deposits, which was principally a growth in U. S. Government
deposits, represented nearly three-fifths of the total deposit expansion. Banks were naturally interested in investing these new demand deposits in intermediate- and short-term securities, especially
the latter.
For these reasons, banks were not active in lengthening the
average maturity of their Government securities holdings by market
purchases to alter the maturity structure of their portfolios appreciably. Banks subscribed for new issues and accepted exchange
issues in the intermediate-term area but there is little evidence from
ownership statistics of active net purchases in the secondary market
in these maturity areas. This observation receives support from
the fact that the average maturity of bank portfolios of Government securities was only slightly longer in May 1958 (48.2 months)
than in October 1957 (47.6 months); heavy exchange into the
6%-year bond in June, however, increased the average maturity
sharply (to 53.0 months). Bank holdings of Government securities maturing in one year or less increased from 25 per cent of
their portfolios in October to 30 per cent in May (partly as the
17
result of the movements of securities into the under-1-year category due to the passage of time) and then declined again to 23
per cent in June.
Between October and May, bank holdings of Government securities in the under-l-year category increased $3.8 billion. The
quest of banks for short-term instruments, against a reduced supply
as mentioned earlier, in turn helped to depress short-term interest
rates to low levels (the average market yield on 3-month Treasury
bills fell to 5/a of 1 per cent in May). This tended to give rise
to expectations that long-term rates would fall further. At the
same time it encouraged investors to seek higher yields, either
through the medium of making loans on securities or through
outright acquisitions of longer term issues in the market and in
Treasury financings.
Bank loans to finance securities holdings of others rose in December 1957 and more sharply in March and April at the time
of cash financings. They declined somewhat in May, before rising
to a record postwar level in June. Among the banks surveyed for
the purposes of this study, loans and repurchase agreements that
originated in 1958 and were outstanding on May 21, 1958 against
Government securities amounted to $725 million. A total of 40
per cent of the loans and repurchase agreements were made with
Government securities dealers. New York City banks accounted
for the largest part of this lending.
Participation of dealers. Dealer net positions in Government
securities—shown for the full 1957-58 period in the accompanying
chart—increased sharply (over $500 million) in the third week
of November when Federal Reserve discount rates were reduced,
but this was also the week in which dealers were acquiring "rights"
to the November refunding.
Between November 13 (just before the discount rate reduction) and January 8 (just before the first reversal in the uptrend
in prices of long-term securities), net positions of dealers increased
by about $1 billion, of which $440 million was in bills and $370
million in other securities maturing in one year; notes and bonds
due in one to five years rose by about $100 million and other
holdings showed little net change. This build-up reflected in part
18
DEALERS'
POSITIONS
IN
WfftNtlDAY mUREf
U.S.
GOVERNMENT
SECURITIES
IflMOKS Of OOUARS
|tjji;iji;J REFUNDING} WW/A CASH
NOTE.—Shaded areas represent periods of Treasury financing operations. Refundings cover period subscription books were
open; cash financings cover periods from opening of subscription books to announcement of allotments.
the usual year-end absorption of short-term securities by dealers
to accommodate the liquidity needs of banks and others.
In the first five months of 1958, dealer positions fluctuated
mainly in relation to the timing of Treasury financing operations.
As is illustrated in the chart on page 19 dealers took new securities
into their positions at the time of financings and subsequently distributed them to retail purchasers. Their net acquisitions of bonds
with maturities over five years were particularly large at the time
of the February refunding, amounting to $400 million. Late in
February holdings of such bonds were supplemented by acquisitions resulting from the Treasury cash financing. In mid-May,
just before the build-up in connection with the June financings, net
dealer positions at $2.4 billion were less than in mid-January,
though greater than at the end of October 1957. The $600 million increase between October 30 and May 14 included $400 million in Treasury bills and $100 million in other securities maturing
within one year. By mid-May holdings of bonds over five years
had been substantially reduced and were up only $100 million
relative to October 30.
For the period prior to June 1958, dealer positions reached
their maximum in the week of April 23, when the $4 billion issue
of 25/& per cent notes was being distributed. During that week
their positions in bills and in securities in the 1- to 5-year maturity
area (reflecting the new note) were at a maximum, but other
holdings were not at peaks.
Dealer willingness to increase their positions in bills, both outright and on commitments to repurchase, undoubtedly assisted
other investors in shifting to longer term securities. It also contributed to the lowering of short-term yields. The ready positioning of new notes and bonds at times of Treasury financings
also contributed to the decline of longer term yields, although this
was mainly an extension of a normal dealer function. In addition,
the build-up of positions in longer term bonds represented the
bullish outlook for bond prices which was held by dealers at that
time and shared by other participants in the market. In April,
however, dealers as a group began to cut back on their holdings
20
of longer term issues, while many other participants were still anticipating further speculative gains.
The volume of transactions handled by dealers showed little
increase in the period of rapid price advance from mid-November
to mid-January, and from early March to late April, except in
weeks of Treasury financings.
INTEREST RATE EXPECTATIONS ON EVE OF JUNE FINANCING
This review of the recession period prior to the June financing
suggests that sizable increases in securities prices occurred without
large apparent shifts through market transactions in the ownership of securities among types of holders, at least insofar as such
shifts are evident from available statistics. The ownership shifts
that did occur were traceable primarily to Treasury financings.
This suggests that price expectations of market participants were
changing more or less correspondingly in the same direction, so
that sizable price advances could occur without being accompanied
by large shifts in ownership of securities. When similar expectations regarding the direction of market prices are shared by most
market participants, as in late 1957, price increases tend to be
large before they call forth responses by potential sellers to the
demands of buyers.
On the eve of the June financing, many investors in and observers of the Government securities market believed that they
had good reason to expect that long-term interest rates would
continue to decline. It is now evident that these expectations
were not justified, for economic activity had already turned up in
May. On the eve of the June financing, however, few observers
or investors foresaw that a period of rapid increase in output had
begun which would bring with it a changed financial situation and,
later, a shift in monetary policy. The opinion was widespread,
given the economic outlook and the wide spread between shortterm and long-term rates, that long-term interest rates had not yet
reached their lows for the year.
To those who held these expectations, experience in earlier
refundings in November 1957 and February 1958 had demon-
21
strated the profit possibilities available. In early June, however,
the very low level of short-term rates added another inducement,
for it meant that the cost of carrying credit-financed speculative
positions was small and lenders were eager to make such credit
available. Thus, the stage was set not only for profitable acquisition of the forthcoming securities on an outright basis but also for
credit-financed speculation on what looked to many like "a sure
thing."
22
3. Setting of Treasury's June Financing
The bull market in Government securities reached its climax in
the Treasury's June financing. The special interest of this study
has been in the shaping of this climax and in market developments
that followed. Accordingly, the record hereafter becomes more
detailed.
In April, following the Treasury's cash offering of 25/s per cent
4% -year notes, attention of professionals in the Government securities market shifted ahead to the June refunding, terms of which
were expected to be announced at the end of May. Three securities, two bonds and one note, aggregating $9.6 billion and maturing on June 15, had to be refinanced.1 Of this total, $455 million
were held at the end of May by Treasury investment accounts and
the remainder by the general public. None was held by the Federal
Reserve System.
MOUNTING INTEREST IN JUNE REFUNDING
In light of the widespread knowledge that subscribers in the Treasury February refunding had profited handsomely on exchanges into
the new intermediate- and long-term bonds issued in that operation, advance rumors that similar securities might be offered in the
June refunding stimulated active interest in the maturing June
"rights." On the basis of these rumors, prices of the "rights"
were bid to premiums of about % of a point late in April and
remained close to that level through all of May and the refunding
exchange period which occurred from June 4-6. Occasionally in
April and through virtually all of May and early June, yields on
"rights" were at negative levels, reflecting speculative appraisal of
1
The three issues were a 2% per cent bond originally sold in mid-1952, a 2Vb per
cent note sold initially in late 1955 and reopened in early 1956, and the 23A per
cent partly tax-exempt bond of 1958-63, called for redemption in June.
23
acquiring whatever longer term issues might be offered in the
exchange.
As the refunding grew closer, market rumor indicated a steady
build-up of speculative positions in "rights," particularly on the
part of investors not normally active in the market who were allegedly financing the bulk of their acquisitions on credit. Although
the price behavior of the "rights" appeared to confirm the existence
of a large speculative interest in the June exchange, there was no
accurate measure of its volume. Rumors were circulated that one
Stock Exchange firm, primarily functioning as a money broker,
had arranged the financing for purchases of many millions of
"rights," and it was presumed that the total volume of credit
financing in "rights" ran upwards of $500 million.
By the end of May, when terms had to be set on new issues in
the June refunding, these rumors of a speculative build-up in
"rights" were disturbing enough to dissuade the Treasury from
granting holders of issues maturing in June any exchange option
into a long-term bond. Holders of "rights" were limited to a
choice between an intermediate-term bond and a 1-year certificate,
and long-term bonds were offered only for cash subscription.
BACKGROUND FACTORS
The general build-up of interest in June "rights" stemmed from
two principal factors, both of which, as brought out in Chapter
2, were products of recession. The first was the widely held expectation that the Government bond market following the exchange would be favorable to the disposition of new bonds, leading
to opportunities for capital gains similar to those that had developed on newly issued Treasury securities earlier in the recession
period. The second was the extreme liquidity of the economy in
the spring of 1958. This ready availability of funds forced shortterm interest rates to unusually low levels in May and encouraged
lenders to search actively for investment and loan alternatives
yielding better returns. This willingness to lend created attractive
opportunities for borrowers to finance credit purchases of Government securities.
24
Business outlook and interest rate expectations*
In retrospect it is
clear that the build-up in June "rights" reached a maximum at a
time when underlying factors making for capital gains in the Government securities market had already begun to change direction.
Few market participants, however, were aware at the time of this
underlying change. On the contrary, they apparently had reasons
for expecting economic conditions to support continuing rise in
bond prices and decline in bond yields. From this vantage point,
therefore, it is useful to re-examine the logical grounds on which
prevailing market expectations were based when decisions on the
June exchange were being made, and to consider the state of
knowledge on economic developments as it actually existed at
that time.
In the early months of 1958, when many institutions and individuals first purchased June maturities in anticipation of a favorable
exchange offering, economic recession was in full momentum. Holders of the "rights," however, were not obliged to make a choice
on whether to commit themselves to a new longer term bond until
books closed on the refunding on June 6. Thus, it was the economic knowledge available in early June that was being relied
upon to shape their exchange decisions.
The chart on page 26 summarizes the latest changes in and
the current state of the economy as they appeared from the statistical evidence actually available in early June. It will be noted that
the latest available monthly data related to April and that the
latest available quarterly estimate of gross national product related to the first quarter. As later events unfolded and were reported, these periods coincided with the cyclical troughs of many
of these measures.2
Thus the image presented by summary measures at the time
of the June refunding showed the economy at new lows for the
* The slight improvement in personal income from its mid-winter lows could be
attributed either to factors independent of the general business cycle—rising farm
prices, increased Social Security payments reflecting expanded coverage of the oldage and survivors program and a Government insurance dividend to veterans—or
to built-in effects of the recession itself, such as increased unemployment compensation payments.
25
PRINCIPAL
MEASURES
OF
ECONOMIC
ACTIVITY
A V A I L A B L E IN E A R L Y J U N E 1 9 5 8
1957-58 contraction. These measures, however, by no means
exhausted the information available on economic developments.
Since these data are measures of the over-all performance of the
economy (available with a lag of several weeks), experienced
observers look beyond the most recent data available in such series
in forming their views on the business outlook.
During May some information was becoming available which
suggested renewed strength in one or two major areas of demand.
In early May, the Commerce Department reported that seasonally
adjusted retail sales in April were nearly equal to the year-earlier
volume and 2 per cent higher than the reduced February-March
level, which was, however, a period of very adverse weather conditions. Most lines of trade were shown to have participated in
the increase. In addition, the number of private nonfarm housing units started in April was reported by the Bureau of Labor
Statistics to have risen to a seasonally adjusted annual rate of
950,000 units, compared with 900,000 in February and March.
Because of prompt reporting of weekly data relating to activity
in May, a few other signs of possible recovery were visible to
26
observers in early June. Thus, sales at department stores in the
first three weeks of May suggested more-than-seasonal advance.
Steel mill operations were known to have risen significantly in
May and an increase in production of automobiles had been scheduled and announced. A sharp upturn in Defense Department
ordering was under way, implying increased business for producers
of aircraft, engines and turbines, and electrical generating and
transportation equipment.
How this emerging suggestion of business improvement should
have been weighed against continued signs of recession was still
a moot question in May and early June. A re-reading of analyses
of the period published in the financial press or issued by advisory
services shows a division of views, reflecting mainly differences of
emphasis placed on recent developments. Some analysts stressed
the improbability of an early turnaround in business fixed investment, which was viewed by them as a necessary precondition of
a vigorous recovery. Other analysts stressed the sustained resistance of consumer demands to the recession, which promised that
the recession might be short lived and pointed to the unsustainably
high rate of business inventory liquidation then in process. Significantly, a growing number of observers—including officials of
the Administration—were willing in May to identify April, tentatively, as the low month of the recession. Thus, while there was
not yet in early June conclusive evidence that a cyclical recovery
was under way, there was gathering evidence to question an assumption of prolonged recession.
Decisions of many prospective speculators, formed in the depths
of the recession, were based on expectations held with a degree of
confidence approaching near certainty. Events in the weeks preceding the refunding could well have induced a reconsideration
of probable risks. Earlier decisions, however, were not generally
reconsidered, reflecting the suddenness of developments and a lag
in appreciating their significance.
Interest rate expectations held by some participants in the refunding, however, did not depend solely on a forecast of continuing economic recession. These participants, while often alert
to the signs of leveling off in the business contraction, assumed
27
that any economic recovery would gain momentum only gradually
in the second half of 1958. This assumption was also proved by
later events to have been mistaken, but in early June it was still
a tenable and widely held hypothesis. Given this view on the
economic outlook, these participants were impressed by the fact
that, after the initial sharp drop in late 1957, yields on mediumand long-term bonds had not declined as usual relative to shortterm interest rates as in other periods of recession in the past. With
yields on Treasury bills continuing to decline sharply in the spring
and long-term yields comparatively stable, the yield spread between the two maturity sectors widened to more than 2Vi percentage points at the end of May.
It seemed reasonable to assume that this unprecedented spread
would be narrowed through a downward adjustment in long-term
interest rates in general. It was reasoned that, sooner or later,
demands by corporations in the capital market would recede to
levels more in line with their reduced rates of spending for plant
and equipment. It was also assumed that, as the recession lengthened, the Federal Government might seek to encourage further
declines in long-term interest rates, especially since some high
Administration officials had been reported as favoring such an
objective. In mid-May, also, two optional Treasury bonds—the
2XA per cent $3.8 billion issue sold in 1944 and maturing in September 1959 and the 23/s per cent $0.9 billion issue sold in 1952
and maturing in March 1959—were called for redemption on September 15. This suggested to many observers that the Treasury
did not expect interest rates to advance appreciably in the near
term since it must have believed as late as mid-May that it would
be able to borrow one-year money in September at less than 2 XA
per cent or the call would not have been made.
As events developed, the mistaken assumptions underlying this
view became clear. Market participants holding this view erred
by underestimating the rapidity at which economic recovery was
to occur and the promptness with which the Government securities
market would react to the turnaround.
Availability o! funds. Availability of funds on a large scale ranks
with expectations of rising bond prices as a primary cause of heavy
28
participation in the longer option of the June refunding. The
various factors responsible for the large accumulation of funds
with banks, nonfinancial corporations, and others in the weeks
preceding the June refunding, together with the resulting general
depression of short-term interest rates, were reviewed earlier. It
is relevant here merely to explain the particular interest rate relationships and other special market considerations present in May
which provided special incentive to lenders and borrowers to participate in the June refunding.
Generally speaking when nonfinancial corporations, commercial
banks, and others accumulate funds on a temporary basis, they seek
to place them in short-term assets with a high degree of liquidity—
principally Treasury bills and other short-term Government securities. For the particular purpose of accumulating funds for quarterly income tax payments, business corporations typically invest in
tax anticipation securities; and to prepare for both tax and dividend payment dates, some companies arrange repurchase agreements with Government securities dealers to cover at least a part
of their cash requirements. The latter agreements permit more
precise timing of cash availability than direct investments in regular
Treasury bills, and at the same time relieve the corporation of the
risk of a depressed market arising from the liquidation of large
blocks of short-term issues during the tax and dividend payment
period.
Over the entire period of the recession up through May, there
had been no sustained increase in the supply of liquid Treasury
instruments—maturities under a year—in the market, so that as
June 1958 approached, with a continuing large volume of liquid
funds in the hands of business corporations and other nonbank
lenders, and with rapid expansion of credit by the banking system,
there was increasingly active competition for the available supply.
Also, a specific deficiency in the supply of market liquidity instruments was the absence of a tax anticipation security maturing in
June to facilitate payment of corporate income taxes. Corporations consequently competed aggressively for other short-term
Treasury issues with appropriate maturities. Commercial banks
and others with surplus short-term funds were likewise seeking in-
29
vestments in short-dated Treasury debt. At this same time, speculative interest in June "rights" was growing rapidly.
This very active general interest in short-term Treasury issues,
combined with active speculative interest in the June "rights," added
further to the market forces that were causing yields on short-dated
Treasury debt to decline to very low levels in May. By May, as
noted earlier, the June "rights" had declined to negative yields;
that is investors were willing to pay, rather than earn, interest for
the remaining time to maturity, to be able to acquire whatever
security might be offered in the exchange. At the same time, yields
on most other Treasury issues maturing within one year had dropped
to 1 per cent or less. Early in May the 90-day Treasury bill yield
was close to VA per cent, but by the end of the month it had
moved down to less than % per cent.
As yields on short-dated Treasury debt declined to these very low
levels, investors with surplus funds sought other short-term instruments, and holders of issues, like "rights" and June bills were encouraged to sell these issues in exchange for other assets. Business
corporations sold "rights" in substantial volume to capture the
market premium and then took the "rights" back from dealers
under repurchase agreements also dated to mature on the tax date.
In addition, some corporations sold other scarce June bill maturities
to dealers in exchange for repurchase contracts at higher rates
against longer term Government securities; and commercial banks,
to improve their rate of return, actively solicited collateral loans,
many of which were secured by "rights" held by Stock Exchange
firms and other dealers and brokers. Finally, the very low market
yields on short-term Government securities intensified incentives
for commercial banks to offset reduced business loan demand
through lengthening investment portfolios. Some corporations
were also induced to lengthen the maturity of their holdings.
Interest rate data on loans and repurchase agreements obtained
from the surveys of this study attest to the success of banks and
corporations in improving their relative earnings. The financing
of the Government securities purchases of borrowers in lieu of
direct investment in Treasury issues for their own portfolios was
considerably more profitable.
30
While those with funds to invest were attracted by these higher
relative returns on loans and repurchase agreements against "rights,"
borrowers at the same time found the unusually low absolute level
of interest rates on such loans to be highly advantageous. For
buyers of "rights" in May who were willing to accept a negative
yield to maturity,3 the prevailing interest cost of financing their
holdings for a few weeks evidently did not loom very large. Those
participants who had forward delivery contracts had either no or
only nominal interest rates to pay.
Perhaps even more important than the premium and interest
costs to those buyers of "rights" who were anticipating a capital
gain from the sale of new bonds was the proportion of the total
cost of the "rights" they could finance on credit. For the buyer
financed by collateral loans at commercial banks, this ratio was
determined by the initial margin he was required to put up by the
bank. Survey data for the study show that a large initial margin
required of borrowers on collateral loans against June "rights"
was 5 points, that is, $50 for each $1,000 of securities carried.
Most borrowers, however, were asked to put up 3 points or
less of collateral, and many, including most of those with repurchase agreements, were not required to commit any of their own
funds. Even under the maximum margin, which was most characteristic of loans to Stock Exchange firms because of the 5 per cent
minimum margin required in the Exchange's rules, each change of
1 per cent in price of the securities results in a 20 per cent gain
(or loss) in terms of the borrower's original equity. The extent
to which this high leverage, combined with overly optimistic price
expectations, attracted participants into the June refunding cannot
be determined, but it is clear that relatively low initial margins increased the buying potential of those who did participate.
Role of money brokers. The pre-June interest of prospective
buyers of "rights" in obtaining credit financing of their purchases,
together with the search by lenders for effective uses of surplus
funds, opened a new area of operation for money brokers. One
8
In May the excess of price of the 2¥a per cent note over a zero yield to maturity
averaged over $1 per $1,000.
31
money broker, who had long experience in matching trades in Federal funds, and who was also a Stock Exchange member, became
particularly important in this regard, for the yields which he was
able to obtain for those with surplus funds were considerably
higher than yields available on alternative short-term investments.
This major money broker's method of operation had two sides,
one involving the placement of June "rights" on repurchase contract with business corporations or commercial banks, the other
the making of offsetting contracts to deliver the securities at a later
date to customers who wanted the long-term bonds expected in the
June refunding. Under this arrangement banks and corporations
were in actuality the lenders, and the customers of the broker the
real borrowers. The money broker's commitment to repurchase
the securities from the bank or corporation was not contingent on
the ultimate customer's performance under the delayed delivery
contract. Hence, the firm was in fact the principal and as such
assumed a posture of risk to its own capital. The firm did not
recognize that its delayed delivery contracts were in effect margin
accounts for customers, however, and therefore did not obtain the
5 per cent margin required by the Stock Exchange. The bulk of
both the repurchase contracts with banks and corporations and the
delayed delivery contracts with customers was apparently made at
the market value of the "rights."
Because the money broker's repurchase agreements in "rights"
were for the most part valued at market prices, neither he nor his
customers were required to put up any significant amount of new
money until the customers actually made good on the final commitment to repurchase. Moreover, because many speculator-customers of the money broker were mainly interested in the anticipated new bonds for capital gains and other special tax reasons
and not for current interest earnings,4 the broker—after taking a
4
The tax advantage was based on the ability to deduct from current income, premiums paid for securities maturing within the tax year, such as the "rights" to the
June refunding. Although the taxpayer also establishes a taxable short-term capital
gain to the extent of any premium on the new issue on the exchange date, he is
able to come out ahead insofar as he can offset it with capital losses from other
transactions during the tax year.
32
small commission on the total transaction—was able to offer the
lender a repurchase contract at a rate equal to most of the rest of
the interest accrual on "rights." Thus, on the 23/a per cent June
bond, the rate to the repurchase lender could be 2 per cent or better,
clearly a highly attractive return relative to the yields then available
on outright purchases of short-dated Treasury debt.
SIZE OF MAY BUILD-UP IN "RIGHTS"
The highly liquid state of the money market just prior to the
June refunding thus created a situation, in some ways quite unique,
in which lenders and borrowers found it mutually advantageous
to seek less conservative credit arrangements involving "rights."
The mutual attractiveness of these arrangements to both lender
and borrower undoubtedly augmented the size of the speculative
interest in the refunding.
The market factors responsible for the build-up of speculative
interest in "rights" prior to the June refunding were generally appreciated at the time. Guessing as to the quantitative results of
these influences varied widely, however; hence the Treasury was
confronted with considerable uncertainty as to the size of the
speculative interest at the time it set refunding terms.
On the basis of the new data collected in the surveys for this
study, it is now possible to document more precisely the extent to
which the build-up in "rights" had actually proceeded at the time
the Treasury announced its terms. The new data are of three
types: (1) figures on investor positions in "rights" which supplement information on holdings already available from the Treasury's
regular survey of ownership, (2) data from Government securities
dealers on daily purchases and sales of "rights" to different types
of investors, and (3) data on credit extended against "rights" during the build-up period.
Existing ownership data on "rights." It should be emphasized that
March ownership data were the latest available to the Treasury
at the time of the announcement of the financing terms. Table 5
shows changes in the holdings of June "rights" over the first five
33
TABLE 5
OWNERSHIP OF MATURING ISSUES, OR "RIGHTS, 1 " IN THE JUNE 1 9 5 8 REFUNDING I
[Par value, in millions of dollars]
End of month
Dec. 1957
March 1958
May 1958
Change Dec.-March
Change March-May—
Total
outstanding
9,556
9,556
9,556
+
Govt,
invest,
accounts
Mut.
sav.
banks
Insur.
cos.
3,974
3,639
3,960
116
106
112
350
278
240
410
454
455
335
321
- 10
4- 6
72
38
+ 44
+ 1
Commercial
banks
-
Alt
others
4,706
5,079
4,789
+
-
373
290
i Issues maturing or called on June I5 t 1958 were
per cent notes amounting to $4.4 billion, 2*A
per cent bonds amounting to S0.9 billion, and 2% per cent bonds amounting to $4.2 billion.
NOTE.—Based on Treasury Department survey of ownership. Total for commercial banks includes
allowance for holdings of banks not included in the Treasury ownership survey.
months of 1958 for the investor groups included in the Treasury's
ownership survey.
Commercial bank holdings. At the end of 1957 commercial banks
—the most important group in the table for which reliable ownership estimates are available—held nearly $4 billion of the issues
which later became eligible for the June exchange offerings. In
the first quarter these banks reduced their holdings of "rights" by
$335 million, a period in which they were at the same time adding
$425 million to their over-all holdings of Government securities.
A substantial part of this net new acquisition of other Governments
reflected purchases of the new longer maturity issues offered by the
Treasury in the early months of 1958.
In April and May when commercial banks were also making
further substantial additions to their portfolios of other Government securities, they reacquired $321 million of June "rights,"
raising their holdings of June maturities back to about the $4
billion level estimated for the beginning of the year.
As is shown in Table 6, this rebuilding of commercial bank holdings of "rights" was concentrated at banks in New York City and
Chicago, which had also been adding steadily to their holdings of
"rights" during the first quarter of 1958. From the end of 1957
to the end of May, these banks acquired more than $400 million
of "rights," of which $286 million were obtained in April and May.
Holdings of banks in reserve cities at the end of May, although
34
TABLE 10
CHANGE IN HOLDINGS OF JUNE "RIGHTS", BY CLASS OF COMMERCIAL BANKS
E N D OF MARCH TO E N D OF M A Y 1 9 5 8
[In millions of dollars]
Class of bank
All commercial banks
New York City central reserve city banks
Chicago central reserve city banks
Reserve city banks
All other banks
$94 million larger than at the end of March, were still slightly
below their level at the beginning of the year. In contrast to the
larger banks, member banks outside the major centers and nonmember banks reduced their holdings of "rights" by nearly $400
million in the first five months of the year and by $59 million in
April and May.
The chief difficulty with information derived from the regular
Treasury survey of ownership is that it provides no breakdown of
changes in holdings for the large residual category of "all other"
investors. Since the "all other" group includes such important
classes of investors as nonfinancial corporations, Government securities dealers, foreign accounts, other dealers and brokers, and
individuals, it is extremely diverse in character; and changes in
holdings for the group as a whole are likely to cover up quite disparate movements in ownership by individual classes of investors
within the group. This deficiency is remedied in part for the prerefunding period of build-up in June "rights" by the surveys of the
present study.
Corporate holdings of "rights " Table 7 shows changes in holdings of "rights" from the end of April to the end of May at the
145 large business corporations included in the special TreasuryFederal Reserve survey of nonfinancial corporations. These corporations, which accounted for nearly three-fourths of all corporate subscriptions to the 2% per cent bond in the June refunding,
held outright nearly $1.6 billion June "rights" at the end of April.
35
TABLE 7
HOLDINGS OF JUNE "RIGHTS" BY 145 LARGE BUSINESS CORPORATIONS
[In millions of dollars]
Holdings
April
30
May
31
Change
during May
Under repurchase agreements
1,596
88
1,183
283
-413
+195
1,684
1,466
-218
Total
During May they liquidated more than $400 million of these holdings in the market, presumably to obtain the attractive premiums
to which the "rights" had been bid. Funds obtained from these
sales were apparently reinvested largely in repurchase agreements;
during May, repurchase agreements of the 145 corporations in June
"rights" rose $195 million, as the table shows; and repurchase
agreements in other securities increased $309 million.
Holdings of New York Stock Exchange firms in "rights'' While
nonfinancial corporations were heavy net sellers of June "rights"
in May, some other investor classes included in the "all other" investors classification of the regular Treasury survey of ownership
were adding to positions in "rights" during this period. Thus,
member firms on the New York Stock Exchange reported that during April and May positions in June "rights" in their own and in
customers' accounts increased from $105 million to $465 million.
As may be seen from Table 8, about one-fifth of this increase repTABLE 8
POSITION IN JUNE "RIGHTS" AT MEMBER FIRMS
OF N E W YORK STOCK EXCHANGE
[In millions of dollars]
Type of accounts
Customer accounts
Firm, partner, or stockholder accounts
36
Apr. 2
May 28
105
465
14
91
92
373
resented a build-up in securities held in accounts of customers.
The much larger increase in positions for the firms' own accounts
was largely accounted for by one firm, the money broker and Stock
Exchange firm whose own commitments, as has been noted, were
offset by delayed delivery contracts with customers.
Government securities dealers* transactions in "rights " Data
obtained in the Treasury-Federal Reserve survey throw some further light on the pattern of changes in investor holdings of June
"rights" from May 21 to May 30. Rounded figures tabulating the
"rights" transactions of Government securities dealers with other
investor groups are given below, in millions of dollars. Plus signs
indicate net purchases by dealers from others, and minus signs
indicate net sales by dealers to others.
Other government securities dealers (several small dealers not included in survey)
+ 5
Commercial banks
+ 9
New York Stock Exchange
firms
— 163
Other brokers and dealers
— 29
Nonfinan. bus. corps
+295
Savings type investors
+ 20
Individuals
— 1
Others
- 21
Net increase in positions of Government securities dealers
+116
In particular, the data provide further confirmation of the importance of nonfinancial corporations as net sellers of "rights"
prior to the refunding. They also show that market professionals
were the principal acquirers of "rights" in the latter days of May,
including both other dealers and brokers (mainly New York Stock
Exchange firms) and regular Government securities dealers. The
very small figure in the table for net purchases of "rights" by individuals probably reflects the fact that most individuals buy and sell
Government securities either through commercial banks or through
dealers and brokers other than Government securities dealers. The
sizable net acquisitions of "rights" by commercial banks during all
of April and May, shown in Table 5, had apparently already been
accomplished prior to May 21.
Credit extended against "rights" The evidence on the build-up
in "rights" prior to the June refunding summarized in the foregoing tables and paragraphs deals only with changes in the owner-
37
ship of "rights." As was indicated, an important element of the
rumored activity in "rights" prior to the refunding was the extent
to which the build-up of interest was financed on credit. Table 9
TABLE 9
BUILD-UP IN LOANS AND REPURCHASE CONTRACTS FOR FINANCING JUNE "RIGHTS,"
LATE MAY, 1 9 5 8 , BY TYPE OF LENDER
[In millions of dollars]
Agencies of
foreign banks
Date or period
All
lenders1
Commercial
banks
Nonfinan.
bus. corps.
Outstanding May 21....
Extended May 22-30....
Repaid May 22-30
384
+ 427
-248
162
+ 275
-165
214
+ 142
-79
8
+ 10
-4
Outstanding May 3 0 —
562
272
276
14
i The other lending institutions surveyed, namely mutual savings banks and life insurance companies,
extended only nominal amounts of credit against the June "rights."
shows the total volume of credit extended against "rights" by all
major groups included in the Treasury-Federal Reserve surveys,
including repurchases as well as collateral loans. On May 21, net
credit extended against "rights" by these groups amounted to $384
million; on May 30 the total had risen to $562 million, reflecting a
substantial volume of gross credit extensions in the intervening
week. When the Treasury made and announced its decision on
May 29 on the terms of the June refunding, credit financing of
"rights" by the lending groups covered by the special surveys was
thus approximately one-half billion dollars.5
Table 10 shows that the May 30 borrowing against "rights"
was confined almost wholly to professionals, with the regular Government securities dealers accounting for nearly three-fifths of the
total. Borrowings by individuals and others were very small, although, as was noted in the earlier discussion of money brokers,
an appreciable part of the $188 million of credit extended to New
5
As will be developed in Ch. 5, which quantifies credit financing of the 25/a per
cent bond, the bulk of the credit extended against issues involved in the June refunding appears to have been provided by the institutions included in this study's
surveys.
38
TABLE 1 0
LOANS AND REPURCHASE CONTRACTS AGAINST JUNE "RIGHTS"
OUTSTANDING MAY 3 0 ,
1958
B Y TYPE OF LENDER AND TYPE OF BORROWER
[In millions of dollars]
Type of borrower
Type of lender
Govt,
All
sec.
borrowers dealers
N. Y.
Other
Stock
brokers Indi- Otherr
Exchange
and
viduals
firms
dealers
All lenders
562
311
188
31
28
4
Commercial banks
Nonfinan. bus. corps....
Agencies of foreign
banks
272
276
85
226
129
50
27
0
28
0
3
0
14
0
9
4
0
1
York Stock Exchange firms in this period reflected loans and repurchase contracts backed by underlying customer commitments.
39
4. Refunding Build-up and its Results
The terms of the Treasury's June cash financing and refunding
were announced after the Government securities market closed on
May 29, 1958. The news that the cash financing would involve
an issue of $1 billion 314 per cent bonds maturing in 1985 (offered at 1001/2 and carrying a 20 per cent downpayment requirement) and that the refunding would be limited to an option of
11-month certificates and 6%-year bonds occasioned some surprise
in the market, since many market participants had been expecting
that a long bond, if issued at all, would be in the refunding.
On June 2, the first day of trading following the Treasury announcement, prices of June "rights" were temporarily depressed,
reflecting some momentary uncertainty whether the restriction of
the exchange option in bonds to the single medium-term issue might
not create some liquidation by disappointed holders who had wanted
a long-term issue. These doubts proved to be short lived, however,
and quotations on "rights'* continued to show premiums of about
% of a point throughout the exchange period. "When-issued"
quotations on the new 25/& per cent bonds likewise showed consistent premiums, and during the June 4-6 period, when books were
open for the exchange, the market for outstanding intermediateand long-term bonds was firm.
INTENSIFICATION OF CREDIT EXPANSION
From new data provided by this study's surveys, it is now clear that
interest in the June exchange did not subside following the announcement of terms by the Treasury, but rather intensified sharply.
In fact, on June 6, as is shown in Table 11, credit outstanding
against June "rights" supplied by all of the major lending groups
surveyed was double what it had been on May 30. In the first
40
TABLE 10
LOANS AND REPURCHASE CONTRACTS OUTSTANDING AGAINST JUNE "RIGHTS"!
[In millions of dollars]
Date
May 21
May 30
June 6
All
lenders2
Commercial
banks
Nonfinan.
bus. corps.
Agencies of
foreign banks
384
562
1,199
162
272
759
214
276
390
8
14
50
1 Outstandings are derived figures obtained by netting survey data on extensions against those on terminations.
2 The other lending institutions surveyed, namely mutual savings banks and life insurance companies,
extended only nominal amounts of credit against June "rights."
week of June, new credit extensions had accelerated sharply to an
average daily rate of $195 million.
The accelerated rise in lending against June "rights" after the
announcement of terms was concentrated at commercial banks, and
on June 6 banks accounted for over 60 per cent of total outstanding
credit extended by all lenders included in the surveys. Moreover,
most of the bank credit extended against "rights" was made by a
relatively small number of large institutions, four-fifths of the total
having been extended by 26 banks.
The pattern of the corporate credit build-up differed from that
of commercial banks in that the greater part of the June "rights"
held by corporations under repurchase agreements at the time of
the exchange had been acquired in April and May. Nonetheless,
the net flow of corporate funds into June "rights" was substantial
in the first part of June, with gross extensions of repurchase agreements against "rights" averaging over $22 million per business
day, while terminations averaged less than $10 million a day. As
was true of the banks, financing of "rights" by business corporations
was heavily concentrated, with eight companies accounting for more
than half of the dollar volume of corporate repurchase agreements
extended against "rights."
Of the $600 million expansion in credit financing of "rights"
between May 30 and June 6, more than half of the added borrowing came from Government securities dealers, who thus continued
to account for more than half of the total borrowing on "rights"
41
TABLE 10
LOANS AND REPURCHASE CONTRACTS AGAINST JUNE "RIGHTS" OUTSTANDING JUNE 6
B Y TYPE OF LENDER AND TYPE OF BORROWER 1
[In millions of dollars]
Type of borrower
Type of lender
All lenders
Commercial banks
Nonfinan. bus. corps....
Agencies of foreign
banks
Govt,
All
sec.
borrowers dealers
Other
N. Y.
brokers
Stock
and
Exchange
dealers
firms
Indi- Others
viduals
1,199
706
352
94
41
8
759
390
436
270
237
76
39
45
41
0
7
0
50
0
38
10
0
1
i Collateral changes to 2% per cent bonds of 1965 and 1*4 per cent certificates of May 1959.
NOTE.—Because of rounding, figures do not necessarily add to totals shown.
as may be seen in Table 12. New York Stock Exchange firms
added $160 million to their borrowing against "rights" raising the
total to $350 million, and other dealers and brokers added $60
million. Direct borrowing by individuals and other miscellaneous
borrowers, on the other hand, continued to account for only a very
small part of the total credit financing of "rights."
MARKET TRADING DURING EXCHANGE
From June 2 to June 6 net transactions of Government securities
dealers with other investor groups in June "rights" and "when-issued" 2s/& per cent bonds followed a pattern similar to that of
late May. Net purchases of dealers from others (plus) and net
sales to others (minus), in millions of dollars, were:
Other Government securities dealers (several small dealers not included in survey)
26
Commercial banks
-f 114
N. Y. Stock Exchange firms
. . . . . ! . / . —290
Other brokers and dealers
!!.!!
—75
Nonfinan. bus. corps
! . . . . . ! ! -f 328
Savings type investors
4- 99
Individuals
/./...I....!
—8
Others
+53
Net increase in positions of Government securities dealers
42
-f 246
Government securities dealers, other dealers and brokers, and
to a limited extent, individuals, were the principal net buyers, while
nonfinancial corporations continued to be the dominant net sellers.
In addition, commercial banks and savings type institutions were
considerably larger net sellers than they had been in the late May
period.
Aggregate net positions of Government securities dealers in
"when-issued" securities (including holdings of both new securities)
on June 6 totaled $547 million. As was suggested by the chart on
page 19, absorption of "rights" by Government securities dealers
at times of Treasury refunding is a normal dealer function. Nevertheless, the aggregate size of dealer acquisitions in "rights" during
late May and early June appears to have been as large as or somewhat larger than in most other similar Treasury refunding operations in recent years. This greater willingness of dealers to acquire "rights" during the June 1958 exchange period reflected in
part the substantial interest in June exchange issues shown at the
time by other investor groups.
Large additional buying by New York Stock Exchange firms in
early June raised the total positions of such firms in June "rights"
and ("when-issued") 25/s per cent bonds nearly 60 per cent, to
$741 million (Table 13). Of this total, only about one-fifth was
TABLE 13
PosmoNs
IN JUNE "RIGHTS" AND ("WHEN-ISSUED") 2 % PER CENT BONDS
A T MEMBER FIRMS OF THE N E W YORK STOCK EXCHANGE
[In millions of dollars]
Date
May 28
June 11
Total
465
741
Customer
Firm, partner, or
accounts stockholder accounts
92
153
373
588
directly held in accounts of customers. When, however, allowance
is made for securities positioned indirectly for customers, total customer interest—direct and indirect—represented 75 per cent of the
43
$741 million. The larger part of this 75 per cent represented holdings of a money broker. In effect, as was noted earlier, his holdings
were for customer account, because the repurchase contracts in
which he was principal were offset by delayed delivery contracts
with customers.
In retrospect, it appears that about half of the credit build-up
in the issues involved in the June refunding occurred after the
Treasury had announced the terms of the exchange. At this point,
there was no longer any doubt that capital appreciation to be gained
from a secondary market rise in prices would have to be obtained
from the intermediate-term issue rather than from the previously
expected long-term bond.
RESULTS OF JUNE EXCHANGE
Between June 4 and June 6 while books were open on the refunding, holders of more than three-fourths of the $9.1 billion of
publicly held maturing "rights" exercised their exchange option
to subscribe to the new 6-year 8-month, 25/s per cent bond. As
Table 14 shows, exchanges into the alternative 11-month certificate
TABLE 1 4
DISPOSITION OF PUBLICLY HELD ISSUES MATURING
OR CALLED IN TREASURY REFUNDING OF JUNE 1 9 5 8 1
Millions
of dollars
Percentage
of total
Publicly held June "rights" outstanding
9,100
100
Issues exchanged
2V%% bond of Feb. 1965
iy4% cert. of May 1959
Issues turned in for cash.
8,757
7,033
1,724
343
96
77
19
4
Disposition
i In addition to holdings and exchanges by the public, U. S. Government investment accounts held
S455 million of maturing issues and exchanged S355 million for the 2% per cent bonds and 592 million for
the t Va per cent certificates, and turned $8 million in for cash. Federal Reserve Banks held none of the
maturing issues.
and cash redemptions were very small—$1.7 billion for certificate
exchanges and $343 million for redemptions. The extraordinarily
high conversion into the medium-term bond resulted in a total allot44
ment to the public of more than $7 billion of the issue, approximately double the prerefunding estimates of official and other informed market observers.
The unexpectedly large size of the new 2s/& per cent bond allotments led at once to the conclusion that the volume of creditfinanced participation supporting the exchange was much larger
than anyone had previously thought. It also suggested that an
inordinately large proportion of the subscriptions had been tendered
by institutional participants and individuals who had neither the
intention nor the resources to hold the new bonds as permanent
investments, and that a considerable period of time would be required before such bonds could be shifted from temporary holders
to the portfolios of more permanent investors.1
INVESTOR ALLOTMENTS—MARKET INTERPRETATION
Subsequent release in late July of investor allotment figures on the
June refunding (shown in Table 15) did not dispel the general
presumption of market participants that the bulk of the $3 billion
or so of unanticipated excess in the size of the new 25/a per cent
bond represented exchanges financed on credit.
At first glance these data did belie any extensive participation
in the new bond by uninformed newcomers—individuals—who were
1
In moderate amounts, subscriptions on a temporary basis by commercial banks,
Government securities dealers, and other professionals are customary and expected
in Treasury refundings, as well as in cash financings. Indeed, such subscriptions
on the part of informed market participants serve the useful function of facilitating distribution of new Treasury issues among ultimate investors who, for one
reason or another, do not acquire the new securities in the initial offerings. Such
redistributions, which ordinarily are accomplished in the course of a few weeks,
are prompted by the prospect of a measure of profit over the offering price. This
gain for performing the function of distribution may or may not materialize, depending on the course of the market in the post-financing period; hence the function is essentially "speculative" in the broad sense of the term.
Similarly, the day-to-day activities in outstanding Treasury issues on the part of
professional traders—in amounts small relative to the total volume of transactions
—tend to smooth out erratic fluctuations in price and help give the market a direction and a level consistent with underlying forces.
Temporary acquisitions of the 25/s per cent bond in the June financings, however, differed both in degree and in kind from the more usual speculative activity
described above.
45
TABLE 15
ALLOTMENTS OF N E W ISSUES IN JUNE TREASURY REFUNDING, BY TYPE OF HOLDER
[Par value, in millions of dollars]
Type of investor
Nonfinan bus corns.
Rrnker^ and dealers
..........................
Insurance cos. and mut. sav. banks
State and local govt, agencies
Govt invest accounts
Others1
Total
25/8%
bond
m%
certificate
4,031
1,045
924
209
305
194
355
325
571
570
47
98
30
191
92
218
7,388
1,817
1 Includes savings and loan associations, private pension and retirement funds, nonprofit institutions,
and investments of foreign balances and international accounts.
alleged to have been of major importance in the late May and
early June build-up of credit financed positions in June "rights."
It was generally argued in the market, however, that the $6 billion
of 25/s per cent bonds allotted to banks, business corporations, and
dealers and brokers actually included substantial credit-financed
holdings of individuals.
The award of more than $1 billion of medium-term bonds to
business corporations was surprising, since such corporations
usually concentrate their exchanges in short-term issues in optional
refundings. This fact was cited to indicate that the corporate allotment figures really reflected an indeterminate but presumably large
volume of exchanges into 25/a per cent bonds of "rights" held
under resale agreement to others.
Similarly, although commercial banks were awarded a smaller
share of the total issue of 25/s per cent bonds than had been true
in some earlier optional refundings involving an intermediate-term
bond, total bank awards of more than $4 billion were, nevertheless, larger than informed observers had previously expected the
whole issue to be. Hence, it was argued that a significant part of
the bank awards could also really represent exchanges of "rights"
held under resale agreement to others.
46
Finally, because it was common knowledge that brokers had
entered into delayed delivery contracts in 25/s per cent bonds with
customers, it was pointed out that their allotment in effect overstated their outright participation and understated awards to ultimate customers—presumably individuals. At the same time, however, it was recognized that on "rights" which brokers had placed
under repurchase arrangements with other investors, allotments
of the 25/a per cent bonds would appear as awards to those other
investors. In short, it was generally presumed that the Treasury
allotment figures on the 2% per cent bond seriously obscured the
real character of participation in the new issue.
ROLE OF REPURCHASE AGREEMENTS
The repurchase arrangement of financing holdings of Government
securities involves in its most common form the sale of securities,
usually by a dealer in Government securities, to a customer—nonbank or bank—combined with a simultaneous forward purchase
of the same or equivalent securities by the sellers as of some specified
future date and at an agreed upon price. Commercial banks and
money brokers sometimes use this arrangement in their transactions with customers. Questions of the market as to the actual
role of repurchase financing in the June refunding are directly answered by study surveys. The importance of repurchase contracts
in the figures on total awards of 25/s per cent bonds to commercial
banks and business corporations is indicated in Table 16.
Included in the survey of commercial banks were 268 banks
which had deposit liabilities of $100 million or more at the end
of 1958.2 These sample banks exchanged $1.8 billion of "rights"
into the 25/a per cent bond, or 45 per cent of the total exchanged
by all banks. Only $154 million, or 8 per cent, of the securities
exchanged by survey banks were held under repurchase agreement,
which left nearly $1.7 billion or roughly 92 per cent of their hold3
This group of banks held 60 per cent of the deposits in all commercial banks
in the country.
47
TABLE 10
PARTICIPATION IN EXCHANGES FOR 2 % PER CENT BONDS OF 1 9 6 5
B Y BANKS AND BUSINESS CORPORATIONS
[In millions of dollars]
• •
Type of
subscriber
Initial
allotments
reported
to
Treasury
4,031
268 large banks in survey
145 large corps, in survey.
Under repurchase agreements with:
On
securities
held
outright
n.a.
Total
Govt,
sec.
dealers
Other
brokers
and
dealers
All
others
n.a.
n.a.
n.a.
n.a.
113
n.a.
1,844
2,188
1,688
n.a.
154
n.a.
36
n.a.
1,045
677
368
258
110
763
282
395
282
363
0)
258
0)
110
0)
5
n.a.
0)
0
0)
n.a. N o t available,
l Assumed to be negligible.
ings of 25A per cent bonds that were acquired on an outright basis
for their own account.
Exchanges for the 2s/% per cent bonds under repurchase agreements are, of course, not known for banks not included in the
survey. Since, however, the practice of lending funds to dealers
and brokers under repurchase agreements is generally confined to
a small number of banks (a few dozen relatively large banks outside New York City), most of which were included in the survey,
the comparative importance of such lending among nonsurvey
banks was probably much smaller. On this assumption, exchanges
by all commercial banks of "rights" held under repurchase agreements, reflecting commitments of other parties to buy the new
bonds, probably amounted to no more than $250 million, and outright participation of commercial banks in the 2s/s per cent bond
was at least $3.75 billion.
The 145 large nonfinancial business corporations surveyed for
this study accounted for $760 million, or 73 per cent, of all corporate subscriptions to the 25/& per cent bonds. Since nearly half,
or $368 million, represented repurchase agreements with dealers
and brokers, outright participation by survey corporations
amounted to $395 million. Use of corporate funds for acquiring
48
Government securities under repurchase agreements is, at any time,
confined to a relatively few very large corporations.
For the weeks preceding the June refunding, only 24 of the 145
large corporations surveyed reported that they had made repurchase agreements against June "rights." It is very likely, therefore, that the companies included in the survey account for virtually
all of the corporate exchanges to 25/& per cent bonds involving such
agreements. On the assumption that all exchanges by nonsurvey
corporations were on an outright basis, outright participation in
the exchange to 2% per cent bonds by all business corporations
amounted to about $675 million compared with total corporate
allotments of $1,045 million.
Study surveys of insurance companies and domestic agencies of
foreign banks revealed no exchanges at these institutions into 2s/s
per cent bonds under commitments to resell, and the mutual savings banks surveyed had only $3 million of such exchanges. Virtually all of the Treasury allotments of 25/s per cent bonds to these
organizations, therefore, are presumed to represent outright investments.
Exchanges for 25/& per cent bonds tendered by dealers and
brokers amounted to $925 million. To obtain a more accurate
estimate of actual dealer and broker interest in the new bond, it
is probably appropriate to add to these direct allotments the $522
million of commitments which dealers and brokers had made to
repurchase 25/s per cent bonds from the commercial banks and
business corporations included in the surveys, together with an estimate for whatever additional volume of repurchase agreements may
have been outstanding with nonsurvey institutions. Addition of
only the known repurchase agreements with survey institutions to
the Treasury allotment figure gives total adjusted awards to dealers
and brokers of just under $1.5 billion.
Not all of this $1.5 billion figure represents outright ownership
by dealers and brokers, however, since a significant amount had already been offset by commitments to customers. Such offsets would
include exchange of "rights" held by New York Stock Exchange
firms for account of customers, forward delivery contracts with cus-
49
tomers, and "when-issued" sales of the 25/s per cent bonds already
committed before the books closed.
ROLE OF FORWARD DELIVERY CONTRACTS
Use of the forward delivery contract was regarded by market
rumor as a major factor facilitating speculative positioning in theJune "rights," especially through New York Stock Exchange firms.
These firms held a total position in 25/s per cent bonds of $741
million on June 11, which was midstream between offering and
settlement dates of the refunding.
Of this amount, $153 million was in customer accounts. Delayed delivery sales were a further offset, however, and it may be
presumed that the sizable position of one money broker member
of the exchange largely represented forward delivery sales to customers, either directly or through other Stock Exchange members
and their correspondents. It may be estimated, accordingly, that
the total forward delivery sales to customers by Stock Exchange
members amounted to a figure approximating $350-$400 million.
For various purposes, Government securities dealers commonly
resort to delayed delivery sales in their operations, particularly
for a very few days. When customers, for example, have large
sums of money becoming available for temporary investment, they
may anticipate these investment needs by buying ahead through
dealers in order to spread out the market impact of the total transaction. Also, in the distribution of new Treasury issues, forward
delivery sales are sometimes made to institutional investors with
delivery dates from a few weeks to several months ahead.
Over the entire period of the June refunding build-up from midApril through June 4, the first day the books were open on the
refunding, dealers made forward deliveries totaling $205 million
in June "rights," and they made $23 million more of such sales in
the 25/a per cent bonds over the ensuing weeks of June. It is interesting to note that these dealer forward delivery sales over this
period approximated forward delivery purchases of New York
Stock Exchange firms. Settlement dates of dealer forward delivery
sales were not ascertained in the study survey, so that the total
50
of such commitments at the time of the refunding itself is not
known.
SUMMARY COMMENT ON ALLOTMENTS
The additional data gained from the surveys covering bank and
corporate repurchase arrangements and delayed delivery contracts
thus suggest that the original Treasury allotment figures on awards
of 25/a per cent bonds to investor classes give a generally correct
impression of ownership participation in the issue. Even when an
adjustment is made for repurchase contracts, commercial banks
and business corporations were the primary holders of the bond,
accounting for approximately 65 per cent of the $7 billion issued
to the public. Outright participation by business corporations,
however, is shown to have been appreciably smaller than was indicated by the original allotment data. Although dealer and
broker interest in the new bond, adjusted to account for repurchase agreements, amounted to about $1.5 billion, offsets to this
total representing commitments to customers probably lowered the
outright interest of dealers and brokers to something less than the
$925 million of the issue they were allotted.
In other words, Treasury figures on awards of 2s/& per cent bonds
overstate outright participation of business corporations, and dealers and brokers, and understate participation of individuals.
51
5- Credit and Credit Standards in June Financing
Use of borrowed funds in the June financing was mainly by dealers
and brokers and individuals. Other investor participation in the
refunding involved little use of borrowed funds. That exchanges for
the 25/s per cent bonds were arranged mostly by investors using their
own resources does not mean, however, that speculative considerations played no part in their decisions to acquire the new bonds.
Subscriptions by participants using their own funds, such as commercial banks and business corporations, were largely responsible
for the over-all size of the issue, and contributed to the vulnerability
of the Government securities market when interest rate expectations
were reversed later in the month. In this positioning, some banks
and corporations were clearly motivated by the higher interest return obtainable from temporary holding of the bond relative to the
certificate.
But the hope of capturing a higher market premium on the bond
than on the certificate was also a powerful incentive to speculative
positioning for many of these investors.
CREDIT FINANCING OF 2% PER CENT BONDS
While total speculative positioning in the 2% per cent bond refunding contributed to the severity of the subsequent market decline, the
share which was financed by credit was of critical importance because these positions were destined shortly to be liquidated. The
volume of credit-financed exchanges amounted to at least one-sixth
of total participation and, on a historical basis, was large in absolute
amount. When added to the cash-financed subscriptions, moreover,
it brought the aggregate size of the new bond issue to a level that
proved unmanageable under the circumstances. The individuals and
other participants who financed on credit had little equity in the
securities they had purchased and a significant number of them,
even though persons of substantial means, had little experience in
52
trading in Government securities. Accordingly, they were ill-prepared to cope with a sudden weakening in the market.
Credit financing of exchanges for the 25/q per cent bonds reported
in study surveys and shown in Table 17 amounted to nearly $1
billion or about three-quarters of the total volume of credit earlier
supplied to finance the carrying of "rights." In view of undercoverage of study surveys, particularly in the commercial bank area, it is
likely that the actual total was a few hundred million dollars larger
than this amount.1 Hence, the general order of magnitude of credit
TABLE 17
CREDIT FINANCING OF EXCHANGES FOR 2 % PER CENT BONDS BY LENDERS
INCLUDED IN TREASURY-FEDERAL RESERVE STUDY
[In millions of dollars]
Borrowers
All borrowers
Collateral loans
Repurchase agreements
All
lenders
Commercial
banks
Nonfinan.
bus.
corps.
Agencies
Of foreign
banks
970
552
368
47
3
445
525
398
154
0
368
47
0
0
3
Others
415
155
258
0
2
Collateral loans
Repurchase agreements
128
287
128
27
0
258
0
0
0
2
N. Y. Stock Exchange firms
417
268
110
38
1
Collateral loans
Repurchase agreements
187
230
149
119
0
110
38
0
0
47
40
0
7
0
40
7
33
7
0
0
7
0
0
0
46
46
0
0
0
45
1
45
1
0
0
0
0
0
0
45
44
0
1
0
44
1
43
0
0
1
0
0
0
Govt. sec. dealers
Other brokers and dealers
Collateral loans
Repurchase agreements
Individuals
Collateral loans
Repurchase agreements
Others
Collateral loans
Repurchase agreements
1
1
NOTE.—Because of rounding, figures do not necessarily add to totals shown.
*Tf the share of nonsurvey banks in lending against "rights" exchanged in the
June refunding was the same as their share of total deposits, namely, 40 per cent,
credit extended by these banks would have accounted for an additional $370 million. Since the nonsurvey banks, each of which held deposits of less than $100
million, are known to be generally less active in Government securities lending
than the larger banks included in the survey, it is likely that credit extended by
nonsurvey banks was smaller than this, probably no more than $200 million.
Four-fifths of the credit against "rights" supplied by all banks included in the
survey was extended by only 26 banks.
53
in financing holdings of "rights" which were exchanged for 25/s per
cent bonds appears to have been around $1.2 billion. This sum
was approximately one-sixth of all subscriptions tendered for the
new issue.
Even if no allowance is made for lending by banks not in the
survey, the principal suppliers of funds were commercial banks—
which were also the largest group of outright participants. About
70 per cent of commercial bank lending was in the form of collateral loans and 30 per cent in the form of repurchase agreements.
The other major source of credit in the June refunding was nonfinancial business corporations, where all lending was in the form
of repurchase agreements. Altogether, when account is taken of
credit extended by nonsurvey banks, repurchase agreements probably represented about one-half of total lending in the June exchange.
At both commercial banks and business corporations, lending
against "rights" was heavily concentrated at a relatively small number of organizations. Thus, of the 161 commercial banks reporting
any lending at all against Government securities in the spring of
1958, 11 institutions in New York State accounted for more than
one-half of total bank lending against "rights" involved in exchanges
for 2s/a per cent bonds, and another 30 per cent approximately was
accounted for by 15 banks outside New York. Of the 145 business
corporations surveyed, only 16 companies reported any holdings of
June "rights" exchanged for 25/s per cent bonds under repurchase
agreements and 4 of these companies accounted for three-fourths
of the total.
The borrowing of funds in the June refunding was also heavily
concentrated among a limited number of participants. Thus,
brokers and dealers accounted for 85 per cent, or $463 million,
of the $532 million of total lending extended by banks in the survey
(Table 17). Only about one-third of this professional borrowing
from banks was attributable to financing of the new 25/s per cent
bond with Government securities dealers; more than half reflected
activities of other dealers and brokers who solicited bank funds to
finance exchanges for their customers. Reports submitted by New
54
York Stock Exchange firms indicate that one firm accounted for the
bulk of these activities.
This broker also appears to have been the principal involved in
a substantial part of the repurchase agreements with business corporations against June "rights." Business corporations reported exchanges of $368 million of "rights" held under repurchase agreements, of which $110 million were with member firms of the New
York Stock Exchange; from reports submitted by member firms to
the Treasury and the Federal Reserve, it appears that one firm accounted for this borrowing. The remaining portion of corporate
repurchase agreements was with Government securities dealers.
The central role played by brokers in bringing individuals into
the June refunding is suggested by the relatively small size of direct
borrowing by individuals. At the time of exchange, commercial
banks included in the survey exchanged only $46 million of "rights"
held as collateral against loans to individuals. These exchanges,
moreover, represented only 68 separate loan transactions. It is possible, however, that lending to individuals by banks not in the survey
was more important in both volume and number. Among the commercial banks included in the survey, the 32 banks which accounted
for about 90 per cent of lending against Governments to Government securities dealers and to member firms of the New York Stock
Exchange accounted for only one-half of such lending to individuals.
CREDIT STANDARDS IN JUNE REFUNDING
A rapid expansion in credit financing of a particular activity raises
questions concerning the quality of the enlarged volume. Thus, it
may well be asked whether the upsurge in lending to finance participation in the June refunding was largely a reflection of increased
demand on the part of creditworthy borrowers, or whether in view
of a plethora of funds, it reflected lenders endeavoring to increase
credit demand by extending credit to borrowers whose qualifications
to assume financial commitments they did not adequately ascertain.
A specific question of interest relates to alleged lowering of margin
standards in connection with credit used to finance exchange of
"rights" for the 2% per cent bonds.
55
Borrower-lender relationships. Statistical surveys are not ideally
suited to providing answers to qualitative questions of this type.
The study's survey of commercial banks, however, does provide
evidence on two aspects of quality: (1) the relative importance in
the June refunding of lending to parties who had not previously borrowed from the reporting banks for a similar purpose; and (2) the
relative importance of collateral loans and repurchase agreements
arranged through a third party. With regard to both these aspects
of bank-customer relationship, there is a presumption—but only a
presumption—that the qualifications of such borrowers were less
well known to lenders than in the case of loans made directly to
previous customers.
The bank survey (Table 18) shows that 15 per cent of the dollar
amount of all loan extensions for purchasing or carrying June
"rights" and 2s/s per cent bonds were arranged through third parties
and were made to first-time borrowers. Significantly, however, about
three-fourths of loans to individuals were made on this basis. This
tends to support the publicized impression that individuals not normally active in the Government securities market did participate in
the June refunding on a credit basis. At the same time, survey
results make clear that the volume of such direct borrowing by individuals was of small importance in the over-all credit build-up.
A comparison of arrangements associated with lending against
"rights" and 25/s per cent bonds with those involved in lending
TABLE 18
BORROWER-LENDER RELATIONSHIP IN COMMERCIAL BANK
CREDIT AGAINST JUNE "RIGHTS" AND 25/$ PER CENT BONDS OF 1 9 6 5
[Percentage of total collateral loans and repurchase agreements]
Borrowed before *
Type of borrower
Total
Borrowed first time
Subtotal
Arranged
directly
Arranged
through
3d party
Subtotal
Arranged
directly
Arranged
through
3d party
Govt. sec. dealers..
N . Y. Stock Exchange firms
Other brokers and d e a l e r s , . . . . . .
Individuals.
Others.
100
100
100
100
100
95
75
85
12
27
87
72
49
10
19
8
3
36
2
8
5
25
15
88
73
1
20
8
12
26
4
5
7
76
47
All b o r r o w e r s . . . . . . . . . . . . .
100
76
68
8
24
9
15
* From the lending bank for a similar purpose.
56
against other United States Government securities (Table 19) shows
that, for most classes of borrowers, a higher proportion of the
"rights" and 25/s per cent bond lending was arranged by third
parties for the new customers of the lending banks. It is likely, moreover, that the proportions shown for loans against "other Government securities" were also higher than usual, reflecting the general
build-up of interest in the Government securities market in the
spring of 1958 when most of these other loans originated.
It should also be noted that the figures covering New York Stock
Exchange firms in Table 18 substantially understate the actual extent of indirectly financed new participation arising from this class
of credit. As has been indicated, the largest part of borrowing
against June "rights" by such firms acting as principals was, in effect,
TABLE 19
RELATIVE IMPORTANCE OF CREDIT ARRANGED BY THIRD PARTIES
FOR FIRST-TIME BORROWERS IN BANK LENDING
[As percentages of totals]
Type of collateral
Type of borrower
All borrowers
Govt. sec. dealers
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals
Others
June "rights"
or 2 Y&% bonds
Other
Govt. sec.
15
4
5
7
76
47
3
1
5
3
56
39
reloaned to individuals through the instrument of forward or delayed
delivery contracts. It is likely that many extenders of credit were
unacquainted with the identities of these ultimate borrowers.
Loans by banks reporting "first-time" lending to Government
securities dealers to finance holdings of "rights" or 2% per cent
bonds amounted to 5 per cent of total bank loans to dealers. This
indicates that dealers found it necessary to go outside their customary bank channels because of the unusually large positions and
borrowing they were carrying in this period. Some of these outside
57
loans may have been necessary because, at a number of banks,
dealers were probably near the limit on their lines of credit.
Adequacy of margins. Availability of large amounts of credit at
low margins has been assigned responsibility by some observers
for much of the speculative activity in "rights" and 2% per cent
bonds and, hence, for an important part of the excessive size of that
issue. In addition, it has been reported that low margins—appro-'
priate to the short maturities on June "rights"—were allowed by
some lenders to carry over after the exchange to the new 7-yearbonds, the price of which would be subject to a much wider range
of market fluctuation than in the case of the "rights." Reportedly,
those lenders who did not later obtain either additional collateral
or repayment of the loans soon found themselves in an exposed risk
position when the market for the new bonds turned down.
Although it is evident that survey data alone cannot answer these
questions, findings of study surveys covering major lenders provide
some of the background data needed to place the role of margins in
perspective. Thus, the aggregate size of credit-financed exchanges
for 2s/s per cent bonds, estimated from survey data at about onesixth of total exchanges, suggests the possible maximum importance
of low-margin credit as a determinant of the total size of the new
bond issue. Other survey data on actual margin practices of lenders
in the refunding further narrow the issues in this area. Because
margin practices in regard to collateral loans and repurchases differ,
these two types of credit instruments are considered separately.
Margins on collateral loans. As may be seen in Table 20, initial
margin requirements on loans collateralled all or in part by June
"rights" which were to be exchanged for 2% per cent bonds were
appreciably more restrictive than margins required on loans against
other securities maturing in one year or less. Thus, Government
securities dealers put up 2 points or more margin on 70 per cent of
the loans against "rights" which were to be exchanged, and put up
little or no margin on 60 per cent of the loans against other shortterm securities.
For all loans against "rights" (including those which were not
exchanged for 25/a per cent bonds, either because of prior termination or other dispositions of the securities), more than one-third
58
TABLE 2 0
INITIAL MARGINS IN COLLATERAL LOANS AT COMMERCIAL BANKS AGAINST
JUNE "RIGHTS" AND OTHER SHORT-TERM GOVERNMENT SECURITIES
Percentage distribution
Type of borrower
Amount
(in
millions
of
dollars)
Total
Initial margin
(No. of points)
No
initial
margin
2
3
4
5
Over
5
21
5
42
40
4
0
2
0
1
4
8
0
3
18
1
6
June "rights" exchanged for 2%% bonds *
All borrowers
Govt. sec. dealers
N . Y. Stock Exchange firms.
Other brokers and dealers..
Individuals
Others
398
128
149
33
45
43
100
100
100
100
100
100
7
13
6
0
5
1
26
17
14
23
28
95
22
38
14
20
25
3
17
19
22
11
17
1
4
8
1
2
13
0
Govt. sec. maturing in 1 year or less
Govt. sec. dealers
All others
1,947
49
100
100
260
37
24
23
10
25
x
21
1
0
1 Also includes loans against mixed collateral of which exchanged "rights" were a part.
2 Consists of 47 per cent with no initial margin and 13 per cent with one-quarter point or less.
3 Consists of 6 per cent with no initial margin and 1 per cent with one-quarter point or less.
were made without margin at the time the loan originated. In contrast, only 7 per cent of the loans which later financed exchanges
for 25/s per cent bonds were made initially with no margin. This
suggests that banks, to a considerable extent, anticipated the need
for higher margins for loans against "rights" which were to be exchanged for the medium-term bond.
That banks generally recognized the prospective change in the
character of the collateral upon exchange may be seen further by
comparing initial margins on "rights" with those on loans against
Government securities due in 5 to 10 years (other than the 2%
per cent bonds). For the latter loans, which were also made for the
most part in the spring of 1958, about 12 per cent carried no initial
margin (compared with 7 per cent for loans against "rights" scheduled for exchange) and 73 per cent had initial margins of 2 points
or more (compared with 67 per cent for loans against exchanged
"rights").
Notwithstanding the generally more restrictive margins required
on "rights" involved in die exchange than on other short-term Gov-
59
ernment securities, the leverage afforded potential speculators by
prevailing margin practices was considerable. An initial required
margin of 5 points was typically found in collateral loans to New
York Stock Exchange firms—which indirectly financed participation of individuals in the refunding. As pointed out earlier, even
under this margin, each change of 1 per cent in price of the securities results in a 20 per cent gain (or loss) in terms of the borrowers' original equity.
The adequacy of initial margins in providing protection for
lenders may be judged from subsequent price behavior of the 2%
per cent bonds (Table 21). On this basis an initial margin of
TABLE 2 1
CUMULATIVE WEEKLY DECLINE IN BID PRICE OF 2 % PER CENT B O N D S !
Week ended
Decline
(in points
and l/32ds)
June 20.
27.
.19
.23
3.
.26
1.02
2.09
1.31
July
11.
18.
25.
Week ended
Aug. 1
8
15
22
29
Decline
(in points
and l/32ds)
2.24
4.25
4.27
5.01
6.07
i Closing price on June 13 (for delivery on June 16) was 100.09; price on August 29 was 94.02,
1 point would have sufficed to keep the value of the collateral
larger than the amount owed through early July. Sharp price
declines in the following two weeks, however, wiped out initial
margins of 1 and, then, 2 points. Similarly a 3-point margin was
erased by early August and a 5-point margin by the third week of
the month.
Commercial banks, however, did not rely solely on the size of
initial margins to assure the soundness of their loans which
financed exchanges for 25/s per cent bonds. On the whole, banks
had reason for confidence in the financial capacity of borrowers.
The privilege of financing the new bonds without margin was confined, for the most part, to established dealers in Government se60
curities. As noted in the preceding section, however, there were
significant exceptions. Nearly 90 per cent of bank lending to individuals for purchasing June "rights" and 25/s per cent bonds
was made to persons who had not borrowed at the bank before for
a similar purpose.
Beyond the safeguard derived through knowledge of the borrower and the amount of his initial equity in the securities, most
banks found protection in agreements that minimum margins be
maintained at all times. The existence of such agreements meant
that, when the market value of the securities declined below a
certain level, borrowers would be called upon to provide additional collateral.
On only $43 million, or 11 per cent of $398 million loans, did
commercial banks fail to obtain from customers agreements to
maintain minimum margins (Table 22). Most borrowers were
TABUE 2 2
AGREEMENTS TO MAINTAIN MINIMUM MARGINS IN COMMERCIAL BANK LOANS
AGAINST JUNE "RIGHTS" EXCHANGED FOR 2% PER CENT BONDS 1
In millions of dollars
Percentage distribution
Type of borrower
Total
Agreement
made
No
agreement
Agreement
made
No
agreement
Govt. sec. dealers
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals
Others
128
149
33
45
43
121
118
32
42
42
7
31
1
4
1
95
79
97
92
98
5
21
3
8
2
All borrowers
398
355
43
89
11
i Also includes loans against mixed collateral of which "rights" were a part.
asked to maintain margins of 1 to 3 points. When New York
Stock Exchange firms were parties to such agreements, the typical
size of the minimum margin was 5 points—higher than for any other
class of borrowers due to Stock Exchange rules. On the other
hand, stock houses were also the type of borrower which most frequently showed no agreement with banks to maintain margins, and
they accounted for $31 million of the loans in this category.
Margin arrangements in repurchase agreements* Repurchase agree-
ments in June "rights" were an important outlet for funds at two
61
major classes of institutions—commercial banks and business corporations. A number of observers have inferred that margin
arrangements in repurchase agreements, in general, were considerably more lenient for borrowers at both banks and corporations than
those which existed on collateral loans at commercial banks, even
where the securities involved in both types of transactions were
long-term and of the same maturity and where funds were provided
to the same type of borrower. The explanation for the presumed
differential treatment of collateral loans and repurchase agreements
appears to lie in differences between the forms of the two types of
transactions, but heretofore there has been but little factual evidence bearing on the matter.2
As may be seen in Table 23, commercial banks did, in fact,
TABLE 2 3
INITIAL MARGINS IN COMMERCIAL BANK COLLATERAL LOANS AND REPURCHASE
AGREEMENTS WITH GOVERNMENT SECURITIES DEALERS
Percentage distribution
Type of transaction
Amount
(in
millions
of
doltars)
Total
No
initial
margin
Initial margin
(no. of points)
Vi or
less
2
3
4
5
Over
5
Treasury bonds due in 5-10 years
Collateral loans
Repurchase agreements
91
67
100
100
12
78
0
14
17
6
48
13
0
1
0
8
0
1
0
4
0
5
0
6
0
Treasury bonds due in over 10 years
Repurchase agreements
225
115
100
100
4
62
0
5
24
38
9
43
0
grant more lenient margin terms under repurchase agreements
than under collateral loans, even when funds were provided to
the same class of borrowers involving the same type of collateral.
It should be noted, however, that banks which participated in the
* For views of suppliers and users of funds on the nature of repurchase agreements, see Treasury-Federal Reserve Study of the Government Securities Market,
Part I, No. 1, Report on Consultations.
62
two types of lending instruments were not equally active in both;
indeed, certain banks tended to specialize heavily in only one form.
The table, therefore, should not be interpreted as representative
of the margin practices of a "typical" bank.
For business corporations, activity in repurchase agreements
against Government securities is even more concentrated among
a few large organizations than in the commercial banking area; 3
hence it is even more hazardous to generalize about the pattern
of margin arrangements (and other characteristics) in corporate
repurchase agreements. The pattern which prevails in any period
reflects in large part practices of corporations which happened to
have been most active at the time.
Most of the 32 companies reporting any repurchase agreements
in the spring of 1958 required little or no initial margin, regardless
of the maturity of security involved. Of the 32 companies, 20
made all their repurchase agreements with no initial margin. Even
on Government securities maturing in more than two years, no
initial margin was required in most cases. Of corporate repurchase agreements secured by collateral other than "rights" exchanged for 2% per cent bonds, 81 per cent of a total exceeding
$4 billion had no margin, 11 per cent had a margin of only VA
point, and 4 per cent had a margin of 2 points.
It is likely, therefore, that repurchase agreements against June
"rights" at both commercial banks and at business corporations
contained little, if any, margins at the time of the exchange offering in early June. At commercial banks, $129 million of "rights"
were exchanged for 25/& per cent bonds under repurchase agreements that were still outstanding on June 16; on $93 million, or
72 per cent of these agreements, no arrangements were made at
any time to obtain additional margin. At business corporations,
$84 million of "rights" were exchanged for 25/& per cent bonds
under repurchase agreements that were still outstanding on June
16; on $25 million, or 30 per cent of these agreements, no arrange-
*Only 32 of 145 large corporations surveyed reported having any repurchase
agreements of $100,000 or more that were either outstanding on May 21, 1958 or
made between May 22 and July 30.
63
ments were made at any time to obtain additional margin. Thus,
at commercial banks and business corporations together, collateral
securing a little more than half, or $118 million, of repurchase
agreements shifted from maturing issues to 7-year bonds without
provision for adjustment of margin.
64
6. Other Credit Financing of Government
Securities in June
Chapters 3 to 5 have provided a detailed picture of investor participation in and credit financing of the Treasury's June financing.
The particular conditions surrounding the June financing, however, were a part of a significantly broader build-up in credit
financing of all Government securities which occurred at the time.
In part this over-all build-up was related to speculative commitments taken by some investors in other Government securities prior
to the June financing. It was also related in part to a special technical situation which developed in mid-June because of the corporate income tax payment date which coincided closely with the
refunding and cash settlement dates on the Treasury's June
financing. On the tax date, there was no Treasury tax anticipation
security maturing to help smooth needed adjustments.
These other credit developments added to the underlying technical
weakness of the market associated with over-extended positions in
the 2s/a per cent bond of 1965. Accordingly, this broader setting of
market development needs consideration before the summer decline
of Government securities prices is reviewed.
SPECULATIVE
COMMITMENTS
IN
OTHER
BONDS
Discussion of the build-up of speculative interest in Government
securities during the spring of 1958 has generally focused on the
situation relating to the 2s/& per cent bond. Most observers of the
market at the time, however, acknowledged that there was an indeterminate volume of speculatively motivated credit financing in
other, mostly long-term, bonds, particularly the 3 l /i per cent bond
of 1990 which had been offered as an exchange option in the
February 15 refunding. Reportedly, there was a large creditfinanced ownership interest in this issue at the time of the mid-June
market reversal, on the part of investors who planned to hold the
65
bonds until August 15 when capital appreciation on the issue would
become eligible for treatment as a long-term capital gain for tax
purposes.
Some of the data obtained from study surveys provide a rough
measure of the relative magnitude of credit-financed positions in
other bonds. On June 21, for example, the sample banks in the
survey showed $351 million of loans and repurchase contracts outstanding secured by bonds maturing in more than 10 years. These
loans and repurchase agreements amounted to over half of the
credit then being extended at the same banks against the 2% per
cent bond. In contrast to borrowings in most other maturity categories, individuals were the largest borrowers represented in the
$351 million total of credit extended on long-term bonds, having
loans and repurchase agreements of $124 million. Government
securities dealers were next largest, with total borrowings of $101
million. New York Stock Exchange firms and other dealers and
brokers ranked third in importance with borrowing of $91 million
against long-term bonds.
Position figures of New York Stock Exchange member firms, as
distinct from credit figures, give a more complete picture of the interest of such firms in Government securities other than the 25/s per
cent bond. Thus, on June 11, Stock Exchange firms held a total of
$1.2 billion Government securities, of which $478 million were
securities other than "rights" and the 2s/a per cent bond. About
$200 million of this total was in firm accounts. Positions of Government securities dealers in bonds maturing over 10 years totaled
$188 million on this same date.
TECHNICAL
STRAIN
IN
MARKET
The various techniques adopted by business corporations in preparing their cash positions to meet heavy June dividend and tax
payment requirements were set forth in general terms at an earlier
stage. It was also noted earlier that the lack of a maturing June
tax anticipation security in 1958 intensified the efforts of corporations to arrange alternative temporary investments to meet June
cash requirements—mainly through repurchase contracts with Gov66
ernment securities dealers and, to the extent possible, through the
acquisition of outstanding Treasury issues possessing convenient
June maturities.
During the first half of June, corporations needed to unwind these
various stores of liquidity—first to meet an excise tax payment date
early in the month, then to cover important dividend payments of a
number of large firms around the tenth of the month, and finally
to meet the June quarterly income tax instalment which fell on June
16 in 1958 because the fifteenth was a Sunday. Funds were obtained through heavy liquidation of outstanding short-dated securities and through run-off of repurchase agreements. As corporate
repurchase agreements were terminated, the securities involved had
to be refinanced or sold.
The unwinding of corporate repurchase agreement commitments
in Government securities at this time fell mainly on dealers. They
in turn had to refinance the securities acquired from maturing repurchase agreements and concurrent outright selling by corporations. Under the double impact of already heavy positions in
"rights" to the June refunding, and the new supply of issues being
liquidated by or repurchased from corporations, dealers* positions
in Government securities rose to record levels. With corporations no
longer a source of funds, dealers had to turn to the banks to obtain
the bulk of the financing required to carry their swollen positions.
Bank loans on Government securities rose to record levels, while at
the same time corporations were also seeking some additional bank
credit on tax borrowing.
Market churning reached a maximum on June 16, since that was
the date of both the corporate income tax payment and the refunding
settlement. Maturities of corporate repurchase agreements in
"rights" and other short-term Treasury issues were concentrated on
that day. Two days later, on the eighteenth, the market was confronted with the added problem of making cash payments on the
new 3V4 per cent bond, and this need further augmented the supply
of outstanding securities coming to market.
Because these mid-June developments occurred at a time when
the Federal Reserve System was maintaining easy money conditions, the sudden build-up in credit demands at city banks did not
67
create any serious tightness in the money market. Nevertheless, a
weak technical situation was created in the Government securities
market. Market churning, increased selling of short-term issues, and
a resulting sharp rise in dealer positions in short-term issues,
together with the pressures of the over-extended position in the
25/8 per cent bonds, created a technical condition vulnerable to
the change in market expectations that began about this time.
A brief review of data bearing on this technical market weakness, obtained from special surveys of this study, helps to illuminate
its several elements.
TABLE 2 4
CORPORATE REPURCHASE AGREEMENTS ORIGINATED AND TERMINATED
B Y TYPE OF SECURITY AND TIME PERIOD
{Average volume per business day, in millions of dollars]
Repurchase agreements originated
Type of security
May 22-31
June 1-15
June 16-30
Total
74.6
87.4
54.2
June "rights"
Bills
Certificates
Notes and bonds maturing in:
Less than 15 months
.
15 months to 2 years
More than 2 years
Mixed collateral
23.6
19.4
4.7
22.4
27.9
7.1
20.6
17.1
10.6
2.7
12.8
0.8
18.0
0.5
10.6
1.0
12.8
'0.0
23.3
0.3
,
Repurchase agreements terminated
May 22-31
June 1-15
June 16
June 17-30
Total
71.3
80.2
806.6
44.0
June "rights"
Bills
Certificates
Notes and bonds maturing in:
Less than 15 months.
15 months to 2 years
More than 2 years
Mixed collateral
13.2
33.0
1.2
10.1
33.6
7.6
314.6
210.0
56.5
2.4
23.7
5.9
11.4
1.7
10.9
0.0
10.3
1.0
16.3
1.5
158.0
0.0
67.5
0.0
1.4
0.2
10.5
0.0
68
Corporate liquidation o£ Government securities positions.
T h e con-
centration of corporate repurchase contract terminations on June
16 for the 145 firms included in the survey is brought out in Table
24. The table shows that the $315 million of repurchase agreement terminations involving June "rights,'* although larger than
for any other category of security, were only 39 per cent of all
repurchase agreement terminations on June 16, which totaled $807
million. The volume data in the table are presented on a daily
average basis to facilitate comparisons between time periods of
different length.
The magnitude of the June liquidation of Government securities by the 145 firms in the survey is further indicated in Table 25,
which shows that total holdings of Government securities by these
corporations (including repurchase agreements) declined $1.5 billion from the end of May to the end of June.
TABLE 2 5
END-OF-MONTH HOLDINGS OF GOVERNMENT SECURITIES
A s REPORTED BY 145 LARGE CORPORATIONS
[In millions of dollars]
Holdings
May
June
Change
Total
8,653
7,127
-1,526
Under repurchase agreements
1,584
984
—600
Outright holdings
Maturing within 1 year
Maturing in 1 year or more
Nonmarketable
7,069
6,474
576
20
6,143
5,406
718
20
-926
-1,068
+ 142
0
At the end of May, the 145 survey corporations held approximately 60 per cent of the total holdings of Government securities
estimated for that month for all corporations in the regular ownership statistics prepared by the Treasury. Since total holdings of
Government securities by all corporations are estimated to have
declined only $1.4 billion from the end of May to the end of June,
it seems clear that the survey corporations accounted for all of the
June liquidation pressure from business corporations.
69
Positions of Government securities dealers. The influence on dealers* positions of the refunding and of the June reduction in holdings of Government securities by business corporations is reflected
in the net position changes recorded in Table 26. Between May
TABLE 2 6
REPORTED CHANGE IN N E T POSITIONS OF GOVERNMENT
SECURITIES DEALERS, M A Y 2 1 - J U N E 1 8
[In millions of dollars]
May 21
June 18
Net change
Total*
2,262
3,411
+ 1,149
Bills
Other issues maturing within one year..
1,146
538
387
191
1,750
715
356
590
+ 604
+ 177
-31
+ 399
Type of security
Bonds maturing in 5 years or more
i Not adjusted for securities committed to be sold under resale agreement
21 and June 18 total net positions of dealers rose by $1,150 million.1 Nearly $800 million of the increase occurred in issues maturing within one year—the maturity area in which corporate
liquidation and repurchase agreement termination centered.
Treasury bill positions alone rose more than $600 million.
The remainder of the position increase was centered in bonds
maturing in more than five years, the maturity category which included holdings of both the new 2s/a and the new V/a per cent
issues. Original dealer awards of the 3Va per cent issues were
less than $100 million, however, and by June 18 dealer holdings
of the 2s/a per cent bond had been reduced to $304 million. Thus,
a significant part of the net holdings of bonds over five years on
June 18 apparently represented other outstanding issues. Analysis
1
With one exception, from Nov. 20, 1957 to May 21, 1958, net total positions
of Government securities dealers had consistently aggregated more than $2.0 billion, as is shown in the chart on p. 19. In evaluating the significance of the
position-volume data for May 21 and June 18, it should be noted that a substantial amount of the totals listed represented dealer commitments to repurchase securities under long-term repurchase agreements. Although these longer term repurchase contracts are included here as part of total positions, some dealers do
not consider them as part of their positions in practice because they are not part
of inventory for sale.
70
of daily position data reported by dealers for this period shows that
a part of these other bond holdings was acquired from June 16
to June 18, presumably reflecting investor liquidation to obtain
cash for payment on the new 3V4 per cent issues and for taking
up "when-issued" purchases of the 25/& per cent bonds.
Build-up in bank lending on Government securities.
As mentioned
earlier, with their total holdings of securities expanding sharply in
June, in large part due to a withdrawal of business corporations
as a source of funds, dealers were forced to seek alternative credit
arrangements, mainly at banks. At the same time, others who
had financed positions in Treasury securities on repurchase agreements with corporations also turned to the banks for substitute
financing.
Table 27 reflects the impact of these increased demands for
TABLE 2 7
CHANGE IN LOANS AND REPURCHASE AGREEMENTS OUTSTANDING
FOR PURCHASING OR CARRYING GOVERNMENT SECURITIES
A T SURVEY BANKS, M A Y 2 1 - J U N E 2 1 *
[In millions of dollars]
Type of borrower
May 21
June 21
Net change
Total
727
2,012
+ 1,285
Govt. sec. dealers
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals
Others
298
190
63
132
45
1,158
392
108
256
98
+ 860
+ 202
+ 45
+ 124
+ 52
i Figures are derived from survey data on loans originated and loans terminated.
bank financing of Government securities on outstanding loans and
repurchase agreements at survey banks. Between May 21 and
June 21 total loans and repurchase agreements on Governments
rose nearly $1.3 billion at these banks, with about two-thirds of
the rise, or $860 million, occurring in advances to Government
securities dealers. Lending to New York Stock Exchange firms
showed the next largest increase, $202 million, as these firms transferred a sizable volume of their own and their customers' financing
71
to banks. The marked increase in lending to individuals, amounting to $124 million, probably reflected a need for individuals to
finance directly with banks, following the termination of repurchase
contracts between Stock Exchange intermediaries and business corporations which had been financing individuals indirectly.
Table 28 provides additional insight on the character of the
TABLE 2 8
LOANS AND REPURCHASE AGREEMENTS FOR PURCHASING OR CARRYING
GOVERNMENT SECURITIES OUTSTANDING AT SURVEY BANKS
OCTOBER 3 0 , 1 9 5 7 AND JUNE 1 8 , 1 9 5 8 1
[In millions of dollars]
Class of bank
Oct. 30, 1957 June 18, 1958
Net change
Total
408
2,420
4-2,012
Central reserve city
Reserve city
Country and nonmember
231
151
26
1,551
709
160
4-1,320
4-558
4-134
l Banks reporting loans included 23 central reserve city banks, 110 reserve city banks, and 49 country
and nonmember banks; 86 banks reported no loans.
build-up in bank credit at mid-June. It relates the June 18 peak
level of loans and repurchase agreements on Government securities to the level of bank credit of this type outstanding on October
30, 1957, prior to the start of the recession bull market in Government bonds. It also shows the distribution of changes in lending
by class of bank. Nearly 65 per cent of the loans and repurchase
agreements outstanding at survey banks on June 18 were at central
reserve city banks, and approximately the same proportion of the
increase in such credit outstanding from October 30 to June 18
also developed at the same banks.
Dealer borrowing* The changes that occurred in the borrowing
by Government securities dealers in the period of maximum buildup of their positions, from May 21 to June 18, are given in Table
29. Repurchase agreements with business corporations declined
nearly $500 million. This cut-back in the use of repurchase agreements with corporations as well as the over-all enlargement of
72
TABLE 20
LOANS AND REPURCHASE AGREEMENTS REPORTED BY
GOVERNMENT SECURITIES DEALERS
MAY 2 1 - J U N E 18
(In millions of dollars]
May 21
June 18
Net change
Total
2,261
3,314
+ 1,053
Commercial bank:
New York City
Elsewhere
Nonfinan. bus. corps
All other
438
303
1,400
120
1,321
868
925
200
+ 883
4-565
-475
+ 80
Type of lender
dealer positions was financed through an increase of approximately
$880 million in credit extended by New York City banks, an increase of $565 million at banks outside New York, and some new
borrowing from other nonbank sources.
73
7. Post Financing Liquidation and Finding
A New Market Level
Because of the weak technical situation described in Chapter 6, the
Government securities market was vulnerable to a shift in expectations about the future of economic and credit developments. When
expectations began to shift in mid-June, therefore, prices of Government securities declined abruptly.
START OF MARKET DECLINE
Announcement on June 10 of the massive size of the conversion
into 2% per cent bonds had occasioned some temporary weakening
of market prices, but in general the first reaction to the June
financing was that the Treasury had been highly successful—first, in
keeping speculation at a minimum in the cash offering, and second,
in dramatically lengthening the debt through the refunding. It was
also recognized that, with the volume of temporary holdings of 2%
per cent bonds very large, considerable time would be needed to
redistribute these holdings to more permanent investors. The general market view seemed to be, however, that so long as easy money
conditions and economic doldrums continued in the period ahead,
there was no real cause for market concern. The relative stability
of price quotations on the two new bonds—the 2% per cent bond
of 1965 and the 3% per cent bond of 1985—through June 13
attests to the prevailing belief that it would be some months before
economic revival would set in (Table 30).
Toward the end of this brief period, liquidation of securities and
termination of repurchase contracts led to some shading of prices
in the market. Then in the first three days of the following week,
June 16-18, when a major portion of the securities reacquired on
expiring corporate repurchase contracts had to be refinanced by
dealers and brokers, liquidation pressures were intensified.
In this period, a number of holders of the 2% per cent bonds
74
TABLE 3 0
"WHEN-ISSUED" QUOTATIONS ON TREASURY BONDS OFFERED IN JUNE 1 9 5 8
JUNE 4 - J U N E 19
{Prices on bid quotations, in 32ds]
Date of quotation
2%% bond of 1965
3H% bond of 1985
100.12
.13
.12
101.04
.04
.02
9
10
11...
12
13
100.11
.10
.12
.11
.09
100.28
.28
101.04
.02
.00
16
17
18
100.06
.02
.00
100.18
.19
.18
19
99.21
100.02
June 4
5
6
who had been carrying "rights" on repurchase contracts with corporations began, as the repurchase agreements expired, to sell bonds
in the market. To some extent such selling may have been planned
in advance, particularly where the repurchase contract was made
essentially for tax purposes. Selling was also stimulated, however,
because some borrowers had not appreciated the fact that refinancing of their holdings at banks, if necessary, would require higher
margins. Although many such holders had the financial resources
to provide higher margins, they frequently were unwilling to do so.
Some corporations that had taken the 2s/a per cent bonds in the
exchange on a strictly temporary basis, in seeking funds for payment of taxes or other June needs, were also sellers in this period;
and still other holders, who became concerned as price declines ate
sharply into the premium on the issue, entered the market to sell
before the new issue dropped below par. 1
The softening of bond prices from June 13 to June 18 was thus
partly a reflection of market offerings of 25/& per cent bonds as well
1
Table 30 shows that the 2% per cent bond reached par on June 18 and then
fell to a discount in the break on June 19.
75
as other issues involved in corporate repurchase contract terminations, and partly a reflection of offerings of other outstanding issues
from investors seeking funds for payment, June 18, on the new
3Va per cent bond of 1985. In addition, market expectations were
being influenced at this time by an accumulation of news releases
pointing to a strengthening in the economic situation.
SHIFT IN MARKET EXPECTATIONS
A succession of news releases early in June clearly suggested more
than a leveling out in economic recession. The following selected
headlines are indicative of the flow of such bullish news: 2
June 7:
June 9:
June 13:
June 14:
June 15:
June 16:
June 17:
Jobless Figures Take Sharp Drop.
Expansion Plans of Business are Cut
Sharply—but Decline in Expenditures for
Plant and Equipment is Expected to Ease.
Starts on Homes Up Again in May—
Private Home Building Activity Rose
above 1 Million a Year Rate Last Month
for the First Time since January.
Industrial Production Turned Up Slightly
in May after Eight Months of Severe Decline.
Personal Incomes Expected to Rise—
Further Increase is Seen in Next Few
Months.
Durables Situation Looks Up.
Rise in Savings Slows Sharply: Trend
Held Sign of Confidence.
On June 18 and 19, three feature stories in the financial press
highlighted the portent of most recent economic information, and
these stories had a profound impact on market expectations. On
June 19, a strong wave of speculative liquidation in the new 25/&
per cent bond swept the market, marking the beginning of the rapid
summer sell-off in the Government securities market.
The first of the stories centered market attention on the outlook
'This list of headlines is limited to bullish news, because such news was increasingly capturing market attention. There were some headlines in the period,
of course, which continued to carry a bearish economic tone.
76
for large Treasury deficits in the period ahead and on the implications of such deficits for resumption of inflationary pressures and for
higher interest rates. The article also stressed the dangers inherent
in excessive financing of the expected deficits in short maturities.
Market observers had been aware of the likelihood of a large Treasury deficit in fiscal 1959 for some time—the projection of a $12.5
billion deficit in fiscal 1959 by the Joint Committee on Internal
Revenue Taxation had been announced earlier in the month—but
so long as business forecasts were for continued recession this prospect was viewed with equanimity from the standpoint of expected
market trends. The June 18 story, however, reopened the question
whether a large prospective borrowing demand by the Treasury
might not now be cause for alarm.
A second news story on June 19 headlined "Fed Sees Turning
Point at Hand—Slows Pace of Drive for Easy Credit" served as a
special catalyst in activating market liquidation. The sensitivity
of the market to this article apparently reflected both its confirmation of a pattern of thinking about the business outlook which
had already been taking form among market participants, and its
implication that monetary policy had already changed. Memories
of the sharp market reversal in November 1957, when a change in
the outlook for economic trends coincided with a change in monetary policy, were too fresh for the market to ignore the message
of the June 19 article. Moreover, some observers, who had been
closely watching the slightly lower level of average free reserves
of member banks reported for early June in the weekly statistics,
had already been raising similar questions.
The third news story, also published on June 19, announced
that the United States Steel Corporation would presently offer $300
million of debentures. This news was a surprise to those who had
been confidently anticipating that a slackening of corporate borrowing demands in late 1958 would help to insure further advances
in bond prices. In addition, it led some to wonder whether the
smart borrowers might not be starting to bid for funds in advance
of expected interest rate rises.
Questions of the kind raised by these articles, together with the
accumulating evidence of economic recovery that supported them,
77
had an important influence on the downturn in Government
securities prices in the early summer of 1958. It is possible, of
course, that these questions would have caused the market to move
in the same direction, though not in the same degree, in the
absence of the overextended market position in the 2% per cent
bond. On the other hand, had the recession continued through the
summer, as some had expected, the earlier market expectation
that the weak holdings of die new 25/a per cent bond could be redistributed into stronger hands without significant market unsettlement might also have proved to be correct.
FACTORS AFFECTING THE DECLINE
The sharpness of the initial decline of Government securities prices
in the summer of 1958 was similar in nature, though not in direction, to the very rapid run-up in prices that had occurred following
the preceding turn in the economic situation at the close of 1957.
Basically both of these periods of accelerated price adjustment were
reflections of the high sensitivity of the Government securities
market in recent years to shifts in the direction of economic activity
and of the strategic role played in this pivotal market by the expectations of participants. In the summer of 1958, the timing of
the economic upturn as well as the speed with which recovery in
activity took hold was a surprise to the market. As evidence continued to pile up that recovery was proceeding, the impact on
expectations was pronounced and the adjustment of Government
securities prices severe.
The speed of the summer decline in Government securities prices
is illustrated in the accompanying chart, which shows the daily
movement of closing bid prices for the two bonds—the 2% per
cent of 1965 and the 3Vi per cent of 1990—which were subjected
to the greatest liquidation pressure. Table 21 on page 60 provided
a cumulative measure of the price decline in the 2% per cent bond.
Technical weakness of market. Given the existence of rapid economic recovery as the basic cause of the Government securities
market reversal, it is nevertheless clear that the speed of the decline, and possibly to some extent its timing, were sharply acceler78
PRICES OF 3 P E R
CENT BOND OF 1990 AND 2% PER CENT BOND OF 1965
NOTE.—Prices are closing bid quotations for each business day.
ated by the weak technical situation in the market when the
the evidence of recovery became available.
The breaking of par by the 2s/s per cent bond on June 19 was
damaging to the confidence of holders who had positioned the issue
in anticipation of future capital gains. Many who were carrying
the issue on credit suddenly came to realize that the large leverage
present in thinly margined purchases of Treasury issues could work
both ways—that is, the same leverage ratio that could lead to such
impressive returns on margin buying in a period of market advance
could also lead to equally dramatic losses in a market decline.
Because the narrow margins on some credit financing of 2%
per cent bonds were, in fact, quickly wiped out, lenders were forced
to make margin calls almost immediately to keep the value of collateral backing their financing from falling below loan value. In
many instances, borrowers were unprepared for these calls.
Although many had the financial resources to meet the calls—
and many did so in the hope of recouping their potential losses
in a subsequent market rally—others were unwilling to put up more
79
margin and moved quickly to sell out. Because of their lack of
experience in Government securities trading, such sellers tended to
adopt distress selling tactics in liquidating positions and in so doing
exaggerated the pace of the decline. Each significant new drop
in prices elicited new margin calls which, in turn, prompted further
liquidation and led to further decline.
In its initial phase, this liquidation of positions in 2% per cent
bonds was dominated by the unwinding of financing arrangements
made by the New York Stock Exchange firm specializing as a
money broker. Pressure from this source developed when New
York Stock Exchange officials ruled that the money broker in his
role as principal between lenders and customers on transactions in
June "rights" was in violation of Exchange rules relating to margin
practices. The money broker was requested to terminate his
position as principal in the financing of 2% per cent bonds as
rapidily as possible and was thus forced in a short period of time
to try to help customers arrange new financing. A part of his
arrangements had been made indirectly through other Stock Exchange firms, which, consequently, also became involved in the
scramble for alternative sources of financing. In either case, compliance with the Stock Exchange decision required wholesale
refinancing with banks of the broker's commitments, and usually
at higher margins. Rather than meet these higher margins, many
of the broker's customers, as has been indicated, sold out.
While liquidation of credit-financed position in 25/a per cent
bonds dominated the market decline in its early stages, as the decline persisted and further evidences of economic recovery became
available, selling by outright holders became more common, both
in the 2% per cent bonds and in other Treasury issues; and
liquidation of other Treasury bonds being carried on credit also
became more extensive.
Treasury intervention. The wave of speculative liquidation in the
5
2 /s per cent bond which added fuel to the sharp break in Government securities prices on June 19 prompted the Treasury to remove
some of the oversupply of the issue so as to cushion the decline.
Over the subsequent three weeks, as Government securities prices
continued under pressure, the Treasury purchased in the market a
80
total of $590 million of the new 25A per cent bonds for Government investment accounts or retirement. Because of the small
volume of maturing "rights" redeemed for cash in the June refunding and the lack of a maturing June tax anticipation security, the
Treasury held an unusually high cash balance at the end of fiscal
year 1958 and therefore was in a comfortable position to finance
these support purchases.
As the chart on page 79 shows, the price decline in the 2s/a
per cent bonds leveled off briefly at the end of June, but then
turned sharply down again after the turn of the month. A brief
rally in the second week of July reflected the Treasury announcement that it had retired $456 million of the excess 2s/s per cent
bonds out of total purchases of $590 million from the market.
Although participants had been aware that Treasury buying was
a market factor in late June and early July, few had realized the
magnitude of the operation. When the rally associated with the
Treasury announcement proved to be short lived and prices declined
further, some small additional Treasury buying was done. But
with seasonal net cash spending rapidly reducing the cash balance
and with some attrition expected in the imminent August refunding,
the Treasury was no longer in a favorable cash position to continue its investment account purchases.
August refunding and Mid-East crisis*
Economic statistics re-
leased in the first half of July served as more conclusive confirmation to the market that the economy had truly entered a revival
phase, and led to the sharp further mark-down of Government
securities prices shown in the chart on page 79. With the market
thus continuing its rapid adjustment, investors began to view the
imminent August Treasury refunding with some apprehension.
Previously, before the changed thinking on the business outlook
had crystallized, it had been commonly presumed that the
Treasury would combine the $11.5 billion August 1 certificate,
$4.8 billion of which was held by the public, and the $4.7 billion
of called September bonds, almost all held by the public, into a
single large refunding operation to be announced in late July. It
was expected that the exchange offerings to holders of "rights"
would include an intermediate-term issue. The prospect of a re-
81
funding of this size and type occurring in a period of rapid market
transition was already raising questions, when, over the weekend
just prior to the refunding announcement, news broke of the coup
in Iraq.
The international crisis in the week that followed, with the
threat of war in the Mid-East, tended to telescope investor expectations of economic recovery and interest rate advances, and added
to the tension about the August refunding. On Thursday, July
17, this market tension was relieved briefly when the Treasury
announced that it would confine its new issue in the refunding
to a 1-year certificate and would also limit the cash offering expected to be required late in August to an issue of less-than-l-year
maturity. It was also announced, however, that the refunding
would include both the August and the September maturities, as
expected.
On the following day, July 18, the brief steadying influence provided by the news that the Treasury would not finance beyond the
1-year area evaporated. For the first time in the market decline,
commercial banks and other institutional investors began to offer
securities for sale in accelerated volume; previously, the bulk of
the liquidation had centered in credit-financed holdings of bonds.
This acceleration of institutional offerings found no offsetting bids
to take them up, and the market became disorderly, with downward price adjustments showing a tendency to become cumulative.
In this situation, the Federal Open Market Committee of the
Federal Reserve System announced that it had instructed the
Account Manager to make purchases of Government bonds in
addition to short-term issues. Bond prices immediately steadied,
as the chart on page 79 shows, and after rising further the next
trading day, held relatively stable for several days, in part as a
result of Federal Reserve actions.
After the July 19-20 weekend, in view of market developments
since the announcement of the August Treasury refunding, it became clear that the new issue was not being well received by investors. The generally demoralized state of the existing market,
and the evident concern of some holders of "rights" that the interest rate structure might soon move rapidly higher, combined
82
to limit investor interest in the new issues. Holders of the called
September bonds, in particular, showed limited interest, since to
many it appeared to be advantageous to retain those issues for reinvestment in the market in September.
In these circumstances, the Federal Reserve System purchased
$1,090 million of the new certificate on a "when-issued" basis and
$110 million of the "rights." Other Federal Reserve purchases
of securities in the period, excluding Treasury bills, totaled $65
million.
Treasury cash borrowing requirements. An increasingly significant
influence on the movement of Government securities prices as recovery progressed was the prospective deficit position of the
Treasury. During July, the large size of likely Treasury borrowing
requirements in fiscal 1959 was highlighted when the Secretary of
the Treasury requested from the Congress, for the second time in
1958, an increase in the public debt ceiling limitation. Following
his testimony, which was the first official confirmation of the previously publicized Joint Committee on Internal Revenue projection
of the fiscal year deficit, unofficial reports of higher spending for
agriculture, highways, interest on the debt, housing, and possibly
defense, resulted in the circulation of stories that the deficit would
indeed be even higher than the Secretary's estimate. Moreover,
those bearish observers with a penchant for longer term forecasts
were predicting that, on the basis of current programs alone without making any allowance for possible new legislation, the budget
could be expected to be out of balance for some years to come.
The first of the fiscal year 1959 cash financings was announced
at the end of July when the Treasury sought to take advantage
of the funds released by attrition and Federal Reserve support
action in the August refunding to issue a 116 per cent March tax
anticipation security. Although many in the market were expecting further interest rate advances in the future and therefore viewed
the new 1Vi per cent issue unenthusiastically, few had any real
doubts that money would remain easy for a while because of the
large Federal Reserve support operation in "when-issued" August
1% per cents. Some, in fact, were convinced that extended
Federal Reserve support of the Government bond market would
83
follow the June 18 authorization to the Account Manager to operate in other than short-term securities.
It thus was a distinct surprise to the market when the August 6
weekly reserve statistics indicated that the potential release of bank
reserves arising from Federal Reserve System support operations
in July had not, in fact, materialized. Sales and redemptions of
Treasury bills and changes in other reserve factors had wholly offset the reserve impact of the purchases of "when-issued" 1% per
cents. Other monetary actions in August and September—raising
margin requirements on credit transactions in common stocks, increasing Federal Reserve discount rates, and further reducing member bank reserve availability—intensified investor expectations of
accelerated interest rate advances.
In this atmosphere, the large seasonal Treasury cash financing
scheduled for early October, together with the substantial volume
of additional cash borrowing anticipated for later in 1958 and in
early 1959, became objects of much market concern. All investor
groups had extremely "standoffish" attitudes toward the market as
the October financing was approached. This attitude contributed
further to interest rate advances.
Renewal of inflation psychology. In combination, the complex of
factors shaping investor sentiment in the summer of 1958 led to
rebirth of the view that further creeping inflation would be inevitable—a belief that had also prevailed in the market in the latter
months of the 1956-57 boom. The early upturn in economic
activity in the spring of 1958, the subsequent rapid recovery, the
publicized failure of price indices to decline during the recession,
the continued granting of wage rate increases even when unemployment was still high, the prospect for a heavy Federal deficit at a time
when other demands for funds would also be pressing on savings,
and the questioning about the accelerated gold outflow all contributed to the renewal of inflation psychology in the summer market
of 1958.
In this climate of market opinion, investors sought to place more
of their funds in stocks, while fixed-income assets—particularly
Treasury bonds providing the lowest return in the yield structure—
suffered by comparison. With the demand for bonds thus diminish84
ing while the supply was expected to rise, further marked upward
yield adjustments (price declines) seemed necessary. In July and
August, this push toward higher levels of interest rates proceeded
rapidly.
EFFECTS OF LIQUIDATION ON INVESTOR POSITIONS,
CREDIT USE, AND TRADING VOLUME
Statistical data obtained in the study surveys constitute a new source
for tracing the incidence of the market decline. The data reveal
the relative importance of different investor groups in the initial
liquidation of the 25/a per cent bond, show the cutback in total
credit financing of Government securities over the period, and make
clear the downswing in the volume of market trading.
Liquidation of positions in 2% per cent bonds.
D a t a on the June
refunding, presented earlier, showed that credit-financed purchases
of the 25/a per cent bond accounted for about one-sixth of the
original holdings of the issue, and that outright ownership, largely
by banks and business corporations, accounted for the balance.
The very large subscriptions to the 25/a per cent bonds by both
corporations and banks appeared to indicate that a substantial part
of the interest from these institutions was also essentially short
term. For this reason, some market observers had concluded
that a number of business corporations, in particular, were weak
holders. Table 31 shows that, in the early stages of the decline,
business corporations were, in fact, important net sellers; it also
shows, however, that the bulk of the initial liquidation of 25/a
per cent bonds came principally from the investor groups who
were financing the issue on credit.
Thus, over the full period of trading in 25/a per cent bonds for
which daily transactions data are available—from the closing of
books on the refunding to the end of July—primary Government
securities dealers reduced their positions in 2s/a per cent bonds by
$377 million, about one-third of total net sales of 2Va per cent
bonds for the period, and other dealers and brokers by $535 million,
or about half of the total. Of this latter figure, about $370 million
represented liquidation by New York Stock Exchange firms.
85
TABLE
20
DEALERS* N E T TRANSACTIONS WITH INVESTOR GROUPS IN 2% PER CENT BONDS OF 1 9 6 5
INITIAL REDISTRIBUTION PERIOD 1
[In millions of dollars]
Investor group
Net change in positions of Govt. sec. dealers inNet purchases from dealers ( + ) , or sales to dealers
( - ) by:
Commercial banks
N. Y. Stock Exchange firms
Other brokers and dealers
Savings type investors
Govt, invest, accounts
Total
June
9-13
June
16-18
June
19-30
July
1-9
July
10-30
-377
-131
-38
-126
-58
-24
-61
+514
-371
-164
-118
+26
-37
2+645
-57
-17
+ 155
+6
+ 125
-60
-7
-28
-4
+ 164
-120
-66
-63
—4
-8
+266
-39
-40
+ 11
-139
-73
-4
-1
-3
+323
-16
-6
+59
-53
-19
-7
+9
-13
2+56
—2
t !
-16
+20
-4
0
-9
N
0
+9
1 Taken from Government securities dealers* reports of their transactions.
2 Includes $20 million 2 ^ p e r cent bonds purchased outright by the Federal Reserve System Open Market
Account on July 18.
Of the total liquidation in the period, business corporations
accounted for about 10 per cent, or $118 million, nearly onequarter of which occurred in the tax payment period. Individuals
were also steady sellers but, as in the build-up phase, accounted
for a minor share of total direct transactions with dealers; and the
miscellaneous investor category showed a moderate volume of net
liquidation after extracting Treasury investment account purchases.
Over half of investor liquidation during the full period was
absorbed by the Treasury by its retirement and investment account
buying. Most of the remaining 47 per cent was taken by various
commercial banks that considered the 2% per cent bonds to be
cheap and likely to recover in price when the temporary liquidation
period had run its course.
In the initial stage of "when-issued" trading from June 9-13,
before prices had really started to slide, dealers performed their
traditional role of secondary market redistribution and were the
only investor group showing significant sales. Commercial banks,
and to small extent, other financial institutions, took up these dealer
offerings.
During the midmonth period of market churning from June 16
to 18, as the premium on the 25/s per cent bond was shaded, New
86
York Stock Exchange firms began to sell; also, business corporations were net suppliers at this time. Commercial banks continued
to absorb virtually all of the supply.
From June 19 to July 9, the period of initial price decline and
principal Treasury intervention, professionals continued to be major
suppliers of 25/a per cent bonds. Primary Government securities
dealers cut back their positions by $184 million, and other dealers
and brokers reduced their holdings about $400 million. Of this
latter total, New York Stock Exchange firms accounted for $259
million. Corporations sold only $67 million in this period and
the miscellaneous investor group a somewhat smaller amount. In
the late weeks of June, banks continued to be large net buyers
of 2s/a per cent bonds, but their net interest diminished appreciably in early July.
On the face of the evidence shown, it would appear that investors
who bought the 25/a per cent bond outright were more stable
holders, even though their initial decision to subscribe to the issue
may have been motivated in part by essentially short-range speculative considerations.
Nondealer trading activity. Net changes of security holdings by
broad investor groups do not necessarily give the full story of the
pattern and impact of trading in a particular period of market
activity, however. For example, in the period in question from
June 9 to July 30, commercial banks, as a group, although steady
buyers of 25/a per cent bonds, were also active sellers of the issue.
Thus, their net demand position in the market reflected gross purchases of $820 million and gross sales of $306 million. Gross sales
of New York Stock Exchange firms totaled $442 million and those
of dealers and brokers $212 million, while those of business corporations were only $130 million.
The gross demand for 2s/a per cent bonds from commercial banks
in this period apparently represented buying interest brought into
the market only by reduced prices and higher yields. At the same
time, commercial banks were reportedly selling other intermediateterm Treasury issues with maturities adjacent to the 2% per cent
bond—issues which, unlike this bond, had not yet lost all of their
87
recession-induced premiums and therefore could be liquidated
without incurring a capital loss.
Financing of 2% per cent bond in market decline.
As has been
shown, many of the arrangements for financing "rights" exchanged
into the new 25/s per cent bond were terminated on the June 16
refunding settlement date. At business corporations, only $85
million of the repurchase contracts against "rights" were carried
beyond June 16 to finance the 25/a per cent bond, and at survey
banks repurchase financing of the bond carried beyond the sixteenth amounted to $129 million, $25 million less than at the time
of the exchange. About $300 million of the new bonds being
financed on repurchase agreements at the time of the exchange
thus had to be refinanced or sold in the market on or shortly after
June 16, and other rearrangements were required by loan
terminations.
A part of the need for new financing was met by corporations
on new repurchase contracts, but more of the need was covered by
banks. End-of-June data on corporate holdings of securities show
repurchase agreements outstanding on 2s/s per cent bonds totaling
$185 million, a net extension of $100 million new contracts during
the immediate post-refunding period. Bank financing of 25/a per
cent bonds in the five days from June 16 to June 21 showed a net
increase in credit extensions of approximately $180 million, not
quite double the corporate repurchase extension.3 Less than 10 per
cent of the new bank financing was in the form of repurchase agreements. Although a large part of it undoubtedly represented refinancing of corporate repurchase agreements or of arrangements
with other banks, some was probably merely a re-extension of old
loans under new terms at the same bank.
After June 21, as is shown in Table 32, total bank credit outstanding on the 25/s per cent bonds declined. Loans and repurchase
agreements outstanding with Government securities dealers were
very quickly liquidated; and bank lending to New York Stock Ex3
This reflected terminations of about $120 million of loans and repurchase agreements originated on "rights" prior to June 16 and net new loans and repurchases
of $301 million initiated after this date.
88
TABLE 20
LOANS AND REPURCHASE CONTRACTS OUTSTANDING AT SURVEY BANKS AGAINST
2 % PER CENT BONDS OF 1 9 6 5 , BY TYPE OF BORROWER
[In millions of dollars]
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
All
others
June 21
551
132
233
46
100
40
July
505
492
474
416
58
70
49
42
198
172
151
140
48
46
50
43
163
157
161
143
39
47
64
48
Week
ended
5
12
19
26
, .
change firms and other dealers and brokers also declined, though
less rapidly than in the case of Government securities dealers.
Individuals, on the other hand, increased their borrowing against
25/a per cent bonds by $60 million from June 21 to July 5, presumably reflecting the removal of the money broker Stock Exchange
firm from its position as principal between lenders and ultimate
borrowers. In the week ending July 19, bank credit extended to
both individuals and miscellaneous investors also rose temporarily,
apparently in response to expectations of a rise in bond prices
occasioned by the Federal Reserve intervention.
Financing of all Government securities. The very large increase
in bank financing of all Government securities in the first half of
June was quickly reversed during the subsequent period of market
decline. Thus, from June 18 to July 30, the terminal date in the survey, loans and repurchase contracts on Government securities at all
banks covered in the survey declined more than $1.25 billion.
Nearly $1 billion of this decline, as is shown in Table 33, occurred
at central reserve city banks.
The chart on page 90 illustrates in somewhat longer range
perspective the unprecedented size of the over-all build-up and
decline of bank lending on Government securities during the summer of 1958. Although the data included in the chart are for
weekly reporting central reserve city banks only, these banks, as
is suggested by Table 33, accounted for the sharp rise in credit
89
TABLE
20
L O A N S A N D REPURCHASE AGREEMENTS FOR PURCHASING OR CARRYING
GOVERNMENT SECURITIES O U T S T A N D I N G A T SURVEY B A N K S
[In millions o f dollars]
Net change
June 18
July 30
Total
2,420
1,138
-1,282
Central reserve city
Reserve city
Country
1,551
709
160
590
472
75
—961
-237
-85
Class of bank
extended at mid-June, and are regularly the major lenders on
Government securities.
Table 34 provides a breakdown by type of borrower of the
changes in bank lending which occurred during the early stages
of the decline. Changes among types of borrowers on all Government securities are similar in pattern to those shown for the
2s/s per cent bond. Government securities dealers very quickly
cut back their borrowing, and other professionals also showed reIEND1NG AGAINST U. S. GOVERNMENT
CENTRAL RESERVE CUT RANKS
90
SECURITIES
TABLE
20
LOANS AND REPURCHASE AGREEMENTS OUTSTANDING AT SURVEY BANKS
B Y TYPE OF BORROWER
[In millions of dollars]
Type of borrower
June 21
July 26
Net change
Total
2,012
1,155
-857
Govt. sec. dealers
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals
Others
1,158
392
108
256
98
438
249
95
256
117
-720
-143
-13
0
+ 19
duced borrowing. Individuals and miscellaneous borrowers, on
the other hand, showed renewed increases in their takings of credit,
largely during the market rallies which accompanied the announcement of Treasury and Federal Reserve interventions.
Details of the cut-back in borrowing by Government securities
dealers are shown in Table 35. Because the data collected from
the dealers ran for a longer period than those collected in the bank
survey, the documentation of the reduction in dealer borrowing
is more complete. From the $3.3 billion level of peak borrowing
on June 18, dealers reduced their loans and repurchase agreements
TABLE 3 5
LOANS AND REPURCHASE AGREEMENTS REPORTED BY GOVERNMENT SECURITIES DEALERS
[In millions of dollars]
Commercial banks
Date or period
Total
New York Elsewhere
Nonfinan.
bus.
corps.
All
others
3,314
1,949
580
1,321
350
85
868
447
1-73
925
1,062
540
200
90
28
Change, June 18-July 30.. - 1 , 3 6 5
Change, July 30-Sept. 24.. - 1 , 3 6 9
-971
-265
-421
-520
4*137
-522
-110
-62
June 18
July 30
Sept. 24
i A negative figure indicates resale agreements are larger than loans and repurchase agreements
combined.
91
by $2.7 billion to $580 million by the end of September, about
the low point for the year.
Over the period from June 18 to July 30, total dealer borrowing declined about $1.4 billion, with nearly $1.0 billion of this
decline occurring at New York City banks. Repurchase contracts
with business corporations rose $137 million in this period. The
further reduction of $1.4 billion in dealer borrowing from the end
of July to late September, on the other hand, was centered in repurchase agreements from corporations and banks outside New
York City.
Positions of brokers and dealers. During the early stages of the
decline, liquidation of professional positions in Government securities—although centered in the 2% per cent bond—were broadly
characteristic of other maturities as well. Changes in holdings of
Government securities dealers are shown in Table 36.
From the $3.4 billion peak level of positions on June 18, dealers rapidly reduced their holdings in all Government securities to
less than $800 million by late September, a decline of more than
$2.6 billion. About $1.7 billion of the decline occurred in secuTABLE 3 6
NET POSITIONS OF GOVERNMENT SECURITIES DEALERS
JUNE 18-SEPTEMBER 2 4
[In millions of dollars]
Net positions
Date
or period
Total
Bills
Other
issues
maturing
within
lyr.
3,411
1,270
792
1,750
952
766
Change, June 18-July 30.. - 2 , 1 4 1
Change, July 30-Sept. 24..
-478
-2,619
June 18
July 30
Sept. 24
Total change
Issues
maturing
in 1-5
yrs.
Bonds
maturing
in 5 yrs.
or more
715
103
1-19
356
87
25
590
128
20
—798
-612
-269
-462
-186
-122
-62
-108
—984
-734
-331
-570
i Negative figure indicates that gross short positions exceeded gross long.
92
rities with maturities of less than 1 year—the maturity area in
which dealers' commitments on longer term repurchase contracts
centered; and over one-half billion dollars of the cut-back occurred
in holdings of bonds maturing in more than five years.
The bulk of the over-all reduction in dealers' positions took
place between mid-June and the end of July, with the very large
summer reduction in short-term holdings occurring in this period.
The further decline in positions of one-half billion dollars from
July 30 to late September was more evenly distributed by maturity
category.
Holdings of 2% per cent bonds at New York Stock Exchange
firms, as Table 37 shows, also declined steadily following the
TABLE 3 7
HOLDINGS OF U . S . GOVERNMENT SECURITIES
A T N E W YORK STOCK EXCHANGE FIRMS
JUNE 11-AUGUST 2 7 *
[In millions of dollars]
Date
June
July
July
July
Aug.
11
2
16
23
27
Total
1,219
844
549
595
511
2% per cent
bond
Other
securities
742
465
230
212
179
477
379
319
383
332
» Includes holdings for firm and customer accounts.
mid-June reversal of prices. Their holdings of other Treasury
securities rose, however, during the market rallies which accompanied the announcements of Treasury and Federal Reserve intervention in the market.
Trading volume. During the summer period of most rapid bond
price decline, considerable concern was expressed by some investors about the thinness of the market and about their inability
to trade bonds in adequate volume. Other investors in commenting on the same period, on the other hand, reported that the
volume of activity was surprisingly large, and that thinness was
a problem only for sellers unwilling to accept realistic prices.
93
TRADING
VOLUME
IN
U. S .
GOVERNMENT
SECURITIES
1957
frff&t RIFUNDtNGS
open
tifttsnrzasas
—were
The accompanying chart provides a comparison between trading
volume in the period of maximum summer unsettlement and other
periods of late 1957 and 1958. It shows that during the summer
of 1958 the weekly average of daily trading volume in all Government securities did not decline appreciably below earlier lows
in activity until late August; during the unsettled period, from
late June through the Treasury's August refunding and cash financing, average trading volume remained close to earlier levels. In
this period, Treasury purchases of the 2s/a per cent bond helped
to maintain trading activity in bonds with maturities of more than
five years, but the participation of investors seeking to buy-in at
reduced prices apparently also added significantly to volume. The
peaking of trading in certificates, notes, and bonds maturing in
less than five years during the third week of July reflected Federal
Reserve purchases of the new certificate offered in the August refunding, as well as purchases by other investors who were encouraged by the Federal Reserve action to add to their holdings.
When bank reserve availability decreased in early August, notwithstanding the Federal Reserve support action in the refunding, and when it became apparent that the Federal Reserve was
making no further purchases of bonds, trading activity in bonds
with maturities of more than five years declined to much lower
levels. The reduced level of activity, however, was only moderately below the level of trading which had prevailed in the late
months of 1957. Certificates, notes, and bonds with maturities
of less than five years were also traded less actively after July,
although, as the accompanying chart shows, much of the more
active trading in these issues earlier in the year had reflected
trading in "rights" prior to the February and June refundings and
trading in the new note offered for cash in April.
After mid-September the volume of total trading in Government securities rose again, largely in response to Treasury offerings of new bills for cash together with other activity in the bill
area stimulated by the brisk fourth quarter demand for such
issues on the part of business corporations. Although trading
in Treasury bills is normally the dominant part of over-all dealer
market activity, the combination of enlarged trading volume in
95
Treasury bills and reduced activity in other types of securities
greatly increased the relative importance of bill trading to dealers
during the fall of 1958.
END OF MARKET LIQUIDATION
Data on market trading volume shown in the chart suggest that
the period of active liquidation of longer term Treasury bonds
following the mid-June market reversal was largely completed by
late August and early September. By mid-September, net positions of Government securities dealers in bonds with maturities
of more than five years had also reached a low point. Reflecting
this moderation of selling pressures, yields on Treasury issues of
intermediate and long maturity leveled off in early September
and then, except for a temporary peak at the time of the October
Treasury cash financing, remained relatively stable during most
of the remainder of 1958.
Over the full period from mid-June to late September the average yield on long-term bonds had retraced all of the recession
decline and was again at a level of 33A per cent. In the same
period the average yield on intermediate-term Treasury issues rose
a little more than IV2 percentage points, equivalent to about 80
per cent of the recession decline.
96
8. Summary of Findings
It remains for this chapter to bring together the highlight findings
and interpretations of this factual review of the Government securities market in 1958 and also to point out its more general
implications for investors, debt management, fiscal policy, and
monetary policy. This task is not readily accomplished to the
satisfaction of every reader. The most that can be done here is
to enumerate those points that have particularly impressed the
Treasury-Federal Reserve group which conducted the study. There
is admittedly room for supplement or modification of the points
listed and readers will naturally find in the rich body of factual
data available from this study many other points of equal or even
greater pertinence to them.
HIGHLIGHT FINDINGS AND INTERPRETATIONS
(1) Investor and speculator judgments in the late spring period
preceding the June refunding were made largely in the light of
information pertaining to an economic situation of one to two
months earlier. This lag in the flow of economic information was
a factor of basic import in conditioning expectations in this critical period of market development. The role of changing market
expectations as to the economic outlook in this period of 1958
clearly emphasizes the need for an adequate supply of current
information about trends in the economy generally to facilitate
the orderly functioning of financial markets.
(2) Underlying the late spring speculative positioning of Government securities was a very low absolute level of short-term market interest rates, as well as an unusually wide spread between
short- and long-term market yields. This low short-term rate level,
together with the prevailing yield structure, vitally influenced the
shaping of market expectations of further increases in Govern-
97
ment bond prices. It further provided the incentives that led to
unusual adaptations of customary credit instruments and terms,
which facilitated a rapid swelling in the market's use of credit.
This development made the market vulnerable to liquidation pressures.
(3) These conditions in the market, along with investor expectations of still higher prices of Government bonds, resulted in
a situation whereby market participants in the June refunding
were encouraged to convert an undue amount of short-term issues
into longer term issues, thus oversupplying the longer term area*
of the market and at the same time sharply reducing the market
supply of short-term instruments. Pressure on earnings created
by the low level of short-term yields led many banks and some
corporations to reach out for the higher yields available in the
June financing in an effort to protect their earnings.
(4) Speculative positioning of "rights" to the June refunding
on the part of outright owners, together with the conversion into
2s/s per cent bonds of a disproportionate amount of their investment holdings of the maturing issues, was of greater volume than
speculative positioning by investors who financed by credit. A
large number of banks and business corporations participated in
this outright speculative positioning.
(5) Although speculation on an outright basis in the June
financing was larger than credit-financed speculation, the latter
was excessive considering the size of the refunding operation.
Moreover, liquidation of credit-financed positions appeared almost
immediately upon the settlement date for the refunding for various
reasons and both triggered and accentuated the declining phase
of the market.
(6) The equity margins put up in this period by credit speculators were, in too many instances, either nonexistent or too thin.
Despite the low margins, the losses suffered on credit-financed
transactions were incurred chiefly by the borrowers rather than
the lenders.
(7) In the speculative market build-up, the use of the repurchase form of credit financing as a vehicle to carry the speculative positions of nonprofessional and unsophisticated participants
98
proved to be unsound. Use of this particular type of financing
instrument, in effect, resulted in lenders advancing credit to unknown borrowers of unknown credit standing or capacity.1
(8) Even among known borrowers of professional standing,
the use of the repurchase agreement device was stretched in terms
of the types of the security which it covered. In the past, this
instrument was employed in the dealer market mainly to finance
securities of the shortest term. In its 1958 market usage, the instrument was extended in numerous instances to longer term securities where the maturity bore little or no relationship to the
date of termination of the agreement.
(9) Where used in the mid-1958 period to finance holdings
of longer term securities, the repurchase agreement technique in
some cases provided a convenient means to circumvent owners'
equity requirements that would have been applicable on loans,
through margins required by lenders.
(10) The use of forward delivery contracts in the pre-June market build-up involving "rights" to the June exchange offerings,
though of lesser magnitude than repurchase financing, nevertheless facilitated an excessive amount of speculative positioning in
this issue without any commitment of purchaser funds.
(11) In the pre-June market build-up, dealers and brokers were
not always aware that their credit standing was in effect used by
others to underwrite speculation with no equity. The preponderance of June "rights" among the forward delivery contracts would
suggest a strong preference for "new" Treasury issues as the mechanism for this speculation.
(12) The total number of commercial banks outside New York
City and also the total number of nonfinancial corporations drawn
into the credit financing of the mid-1958 speculative build-up was
relatively small, and the major portion of the credit extended was
from only a few banks and business corporations.
(13) In the late spring market build-up, some lending by New
1
With regard to use of this financing form by New York Stock Exchange members, notably by one member firm specializing in money brokerage, corrective action has already been taken by the Exchange to prevent a recurrence of similar
abuse of this instrument in the future.
99
York City banks, collateralled by Government securities, was at
rates and margins that, under the prevailing market psychology
and the then-existing conditions, were conducive to the financing of speculative positions.
(14) The sizable increase in dealer positions prior to the Treasury's June 1958 financing was partly associated with the heavy
volume of market trading in that period. Although largely concentrated in short-term securities, the expanded dealer positions
did provide a market for these issues which facilitated the lengthening of portfolios and speculative positioning by many investors
during the period, particularly banks.
(15) Even though dealer positions at the time of the June re*
funding were heaviest in the short-term maturities in the market,
liquidation of these positions in the following three months, though
largely necessary to protect dealer capital positions, did add significantly to the supply pressures otherwise present in the market
during this liquidation phase.
(16) The extensive use of the repurchase instrument for financing all types of Government securities in late spring of 1958
resulted in very large repurchase maturities in mid-June coincident
with other churning in the money market in connection with settlement for the Treasury refunding. The necessity of refinancing
the securities underlying these repurchase transactions put the
Government securities market under heavy internal strain at that
time.
(17) The absence of a Treasury tax anticipation security maturing at mid-June led to much corporate interest in the June
maturities as corporations made use of these issues to invest accumulating funds to meet their June tax and dividend needs.
This accounted for a considerable part of the market churning at
the time of the refunding.
(18) The availability of regularly issued statistical information
about the market itself might have succeeded to some extent in
forewarning market participants and interested public agencies of
potential speculative dangers around mid-1958. The fact of the
matter, however, is that no such objective information was availa100
ble to either group to gauge the extent of the speculative forces
that were present in the market.
(19) In the closing months of 1958, when many commercial
banks were experiencing seasonal credit demands, study data show
a movement of funds from the Government securities market to
the banks effected through the vehicle of the repurchase agreement. In other words, some dealers were functioning as money
brokers, acting as principals in obtaining funds from business corporations under repurchase arrangement and in turn supplying
funds to banks under a reverse repurchase arrangement (resale
agreement) with them. Question can be raised regarding the appropriateness of a money brokerage function as part of the dealer
operation.
(20) Most of the decline in market interest rates on Government securities, following confirmation in the late fall of 1957
that economic recession had set in, was effected within a short
time span—less than four months. The sharp rise in market rates
on Treasury issues, following confirmation after mid-1958 that
economic recovery had begun, was likewise effected in a short
time span—about four months. Although liquidation of Government security positions, built up in hopes of speculative gains
in the June refunding, played a central role in accentuating the
rise in market interest rates after mid-195 8, it does not necessarily
follow that the upward interest rate movement of the entire recovery period would have been smaller if the earlier speculative
distortions had been avoided. Upward pressures on interest rates
from cyclical Federal deficit financing in combination with expanding private demands for financing, given the savings supply over
these months, would still have resulted in a substantial, if not
identical, rise in market interest rates.
MORE GENERAL LESSONS AND PROBLEMS
There are also four general observations that may be worth stating by way of conclusion:
(1) For purchasers of marketable Government securities and
for lenders, the risks of speculation on anticipated cyclical price
101
movements of fixed-income Government securities, and particularly of speculation on slim margin, credit-financed holdings, have
been widely learned.
(2) In the area of fiscal policy, there is the problem that recession deficits often run to very large size and are delayed beyond
the turn in the economy; as a result they provide stiff financing
competition when growing demands for the financing of recovery must be satisfied from a more slowly growing savings supply,
and this competition for savings funds may have significant, but
largely unavoidable, effects on securities prices and interest rates.
(3) In the area of debt management, there is the problem as
to whether, in periods when easy credit conditions lend investor
favor to longer term, higher yielding issues, a large and rapid
shift in the maturity structure of the debt may result in supply
and demand distortions, which may later have upsetting and disruptive effects on the market.
(4) In the area of monetary policy, there is the problem as to
whether easy credit conditions and accelerating monetary expansion for counter-cyclical objectives may be carried to the point
where banks and other lenders respond too actively to speculative
demands for credit, so that lenders, in their zeal to keep their
funds employed to fullest advantage, may too easily relax the
credit standards which long experience has taught to be sound.
102
Appendix A
Summary of Replies by Commercial Banks
EXPLANATORY NOTES
Commercial banks included in the survey were those with deposits
of $100 million and over on December 31, 1958, a group which
comprised 268 banks holding three-fifths of the deposits of all
commercial banks in the country. These 268 banks accounted
for $1,8 billion, or 45 per cent, of all commercial bank exchanges
of maturing securities into the 25/& per cent bond of 1965 offered
in the June 1958 refunding. Of this $1.8 billion, $154 million
represented subscriptions involving resale agreements, almost entirely with brokers and dealers.
Two questionnaires, copies of which are reproduced on pages
124-25, were addressed to each of the 268 banks. One (Form 555902) requested them to indicate the number and amount of
loans and repurchase agreements, for purchasing or carrying United
States Goverment securities, outstanding on three dates: October
30, 1957, June 18, 1958, and July 30, 1958.1 The information
provided is summarized in Table A-l. They were also asked to
indicate on this form the amount of subscriptions to the 2s/s per
cent bond tendered for the account of the bank in the Treasury
refunding of June 1958 that were subject to resale agreements.
The other questionnaire (Form 55-5901) requested banks to
fill in a separate form on each loan or repurchase agreement of
$100,000 or more for purchasing or carrying United States Government securities made after December 31, 1957, and outstanding on May 21, 1958, and on each loan or repurchase agreement
a
The term "repurchase agreement" is used to cover both sides of this type of
transaction. From the standpoint of the bank, the transactions included in the
surveys are agreements to resell the securities to other parties, who on their part
have contracted to repurchase them.
103
originated between May 21 and July 30, 1958. The following
information was obtained for each loan or repurchase agreement:
type of borrower, amount of credit extended, date made, whether
the credit was arranged directly or through a third party, whether
the borrower had obtained credit for similar purposes before, the
maturity terms, interest rate charged, type of collateral, margin requirements, and date credit was terminated. The information is
summarized in Tables A-2-A-14.
Of the 268 banks, 161 reported on Form 55-5901 a total of
4,934 loans and repurchase agreements. The remaining 107 banks
reported that they made no loans or repurchase agreements against
Government securities during the period covered by the survey.
Commercial loans with United States Government securities as
collateral are excluded from these figures, as is all interbank lending involving Government securities; a small amount of loans to
purchase United States Government securities with collateral other
than Government securities is included.
While not specifically covered by written instructions, respondents were told when questions arose that each time there was a
change in the loan or its characteristics, such as the amount, collateral, interest, etc., they were to assume that the old loan was
repaid and a new credit was extended. Renewals were treated
as new loans. In cases where a series of credits was extended to
a single borrower on the same day with identical terms, respondents were told to treat these as a single transaction. Where a
number of single-day or other short-term loans or repurchase agreements was made to a single borrower over a period of time, each
loan or repurchase agreement was considered a separate transaction.
104
TABLE A - 9 , COMMERCIAL BANKS
LOANS AND REPURCHASE AGREEMENTS, FOR PURCHASING OR CARRYING
U . S . GOVERNMENT SECURITIES, OUTSTANDING ON SELECTED DATES
Increase, or
decrease (—), from:
Class of bank
Number
of banks
Oct. 30,
1957
June 18,
1958
July 30,
1958
10/306/18
6/187/30
Amount outstanding, in millions of dollars
Total 1
182
408
2,420
1,138
2,012
-1,282
Central reserve city
Reserve city
Country and nonmember.
23
110
49
231
151
26
1,551
709
160
590
472
75
1,320
558
134
-961
-237
-85
Number of loans
Total 1
Central reserve city
Reserve city
Country and nonmember.
. 182
1,339
2,520
2,191
1,181
-329
23
110
49
258
757
324
731
1,295
494
542
1,211
438
473
538
170
-189
-84
-56
i Of the 268 banks with deposits of S100 million and over as of Dec. 31, 1958, 86 banks reported no
loans for purchasing or carrying U. S. Government securities on Oct. 30, 1957, June 18, 1958, or July 30,
1958.
105
TABLE A - 2 , COMMERCIAL BANKS
VOLUME OF LOANS AND REPURCHASE AGREEMENTS ORIGINATED, BY TYPE OF BORROWER
o
0\
Date or period
(1958)
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
All
borrowers
Loans and repurchase agreements
(in millions of dollars)
Total
Outstanding May 21
Originated:
May 22-31
June 1-15
June 16
June 17-30
July
Total
....
Total
June 17-30...
July
Others
16,208
1*466
544
508
190
100
86
8
3
3
1
727
298
189
63
132
45
100
41
26
9
18
1,508
4,548
1,110
5,682
5,342
1,255
4,179
894
5,124
4,458
152
262
129
264
469
69
56
27
150
179
26
39
42
103
165
6
12
17
40
70
100
100
too
100
100
83
92
81
90
83
10
6
12
5
9
5
I
2
3
3
2
I
4
2
3
6
<2>
<2>
Percentage distribution of amount
13,964
12,227
912
178
481
166
too
88
7
I
3
1
504
215
76
38
131
44
100
43
15
[
8
26
9
937
3,805
992
4,269
3,457
840
3,482
798
3,925
2,967
62
246
116
172
240
10
32
24
38
36
21
37
40
98
155
4
9
14
36
60
100
100
100
100
100
90
91
80
92
86
7
6
12
4
f
i
I
1
2
1
I
'
7
i
1
?
2
I
4
2
4
(2)
<2>1
1
2
Percentage distribution of amount
4,952
3,981
554
366
26
24
100
80
11
7
1
223
83
113
25
1
1
100
37 i!
1
51
11
(2)
571
743
118
1,413
1,884
415
697
96
1,199
1,491
90
16
14
92
229
59
24
3
112
144
5
2
3
6
10
2
4
3
4
10
100
100
100
100
100
73
94
8i
85
79
16
* Includes transactions of $100,000 and over, for purchasing or carrying U. S. Government securities, made after DJC. 3t, 1957.
2 Less than 0.5 of 1 per cent.
Individuals
18,917
Repurchase agreements (in millions of dollars)
Outstanding May 2 P
Originated:
May 22-31
June 1-15
Other
brokers
and
dealers
Percentage distribution of amount
Loans (in millions of dollars)
Outstanding May 211
Originated;
May 22-31
June 1-15
June 16
June 17-30
July
N. Y.
Stock
Exchange
firms
Govt
sec.
dealers
2
11
7
12
i
i
ii
j;
!1
1
10
3
3
8
8
1
(2)
2
(2)
1
(2)
(2>
(2>
(2>
3
(2>
1
TABLE A - 9 , COMMERCIAL BANKS
VOLUME OF LOANS AND REPURCHASE AGREEMENTS ORIGINATED
BY TYPE OF U . S . GOVERNMENT SECURITY
[tn millions of dollars]
Date or period
(1958)
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
Against "rights" and 2%% bonds only
Total
Outstanding May 21 1 .
Originated:
May 22-31
June 1-15
June 16
June 17-30
July
1,997
1,018
473
169
1 " 257
162
30
86
26
19
t
275
762
287
238
272
148
582
107
82
68
61
136
101
45
45
56
18
23
37
9
9
20
39
56
114
2
5
17
19
36
81
Against mixed collateral including "rights" and 2%% bonds
Total
Outstanding May 21 1
Originated:
May 22-31
June 1-15
June 16
June 17-30
July
6,319
5,901
367
28
18
77
47
22
1
2
5
596
1,761
346
1,981
1,558
532
1,750
328
1,879
1,365
63
10
16
86
170
2
1
0
14
10
0
1
1
2
13
0
0
0
0
0
5
Against other U. S. Government securities maturing in over 5 years
Total
Outstanding May 21 1
Originated:
May 22-31
June 1-15
June 16
June 17-30
July
1,014
499
206
53
180
77
203
48
39
9
84
24
52
144
25
279
310
30
86
20
165
150
4
32
0
40
92
1
7
4
15
18
15
15
2
39
24
2
5
0
20
27
Against all other U. S. Government securities*
Total
Outstanding May 211.
Originated:
May 22-31
June 1-15
June 16
June 17-30
July
9,587
8,791
420
295
53
27
285
173
43
27
28
14
585
1,880
452
3,184
3,201
545
1,761
439
2,998
2,875
25
85
12
94
162
11
29
1
85
142
2
3
0
7
14
2
2
0
1
8
1 Includes loans and repurchase agreements of $100,000 and over made after Dec. 31, 1957.
2 Figures include a small amount of collateral other than U. S. Government securities.
107
TABLE A - 4 , COMMERCIAL BANKS
VOLUME OF LOANS AND REPURCHASE AGREEMENTS TERMINATED 1
[In millions of dollars]
Date or period
(1958)
All
borrowers
N . Y.
Stock
Exchange
firms
Govt
sec.
dealers
Other
brokers
and
dealers
Individuals
Others
Loans and repurchase agreements
Total
May 21-31
June 1-15
June 17-30
July
After July 2
Outstanding, Mar. 15, 1 9 5 9 2 . . . .
18,917
16,208
1,466
544
508
190
1,267
3,614
794
6,084
6,221
837
1,075
3,455
721
5,538
5,098
308
104
110
55
349
651
158
76
31
7
120
219
80
9
16
8
51
196
200
2
3
4
26
57
91
100
13
40
10
29
8
Loans
Total
May 21 31
June 1 15
June 16
June 17-30
July
After July 2
i
Outstanding, Mar. 15, 1 9 5 9 2 . . . .
13,964
12,227
912
178
481
166
827
2,862
691
4,660
4,118
709
782
2,736
654
4,347
3,476
219
23
101
27
214
365
142
12
8
2
30
56
62
9
16
8
47
175
200
1
2
0)
22
46
86
97
13
40
9
28
8
Repurchase agreements
Total
4,952
3,981
554
26
24
May 21-31
June 1-15
June 16
June 17-30
July
After July 2
440
752
104
1,424
2,102
128
293
718
68
1,190
1,623
89
81
9
28
135
285
16
65
24
5
90
163
19
0
0
0
4
21
0
1
1
4
4
10
4
2
0
0
1
2
0
Outstanding, Mar. 15,, 1 9 5 9 2 . . . .
366
1 Includes terminations of loans and repurchase agreements of $100,000 and over made after Dec. 31
1957 and outstanding May 21, 1958, or made between May 21 and July 30, 1958.
2
Includes no loans or repurchase agreements made after July 30, 1958.
3 Less than $500,000.
108
TABLE A-9, COMMERCIAL BANKS
N E W 2 % PER CENT BOND COLLATERAL FOR LOANS AND REPURCHASE AGREEMENTS
ORIGINALLY MADE AGAINST "RIGHTS", JUNE 1 6 , 1 9 5 8
[Par value, in millions of dollan]
Period of origination
(1958)
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
Loans and repurchase agreements
Total
527
152
246
40
46
44
Before Apr. 2 8 . .
Apr. 28-May 24,
May 26-May 31,
June 2-June 7...
June 9-June 14.,
106
56
70
263
32
3
11
5
112
22
58
14
53
116
5
5
13
5
17
0
5
12
8
16
6
35
7
0)
K
2
0
Loans
Total
398
128
149
33
45
43
Before Apr. 2 8 . .
Apr. 28-May 24,
May 26-May 31,
June 2-June 7...
June 9-June 14..
40
37
47
241
32
0
3
3
101
22
<*>
(>)
12
5
17
0
5
12
8
16
6
35
6
(l>
2
0
6
32
106
5
Repurchase agreements
Total
Before Apr. 2 8 . .
Apr. 28-May 24,
May 26-May 31,
June 2-June 7 . . .
June 9-June 14.,
129
24
97
7
1
1
66
18
23
22
0
3
8
2
11
0
58
8
21
10
0
5
1
0
1
0
0)
(')
0
0
0
0
1
0
0
0
i Less than $500,000.
109
TABLE A - 6 , COMMERCIAL BANKS
CONCENTRATION OF BANK CREDIT EXTENDED ON LOANS AND REPURCHASE AGREEMENTS BY TYPE OF BORROWER *
Type of borrower
Number or location of banks
All loans and
repurchase
agreements
Repurchase
agreements
Govt. sec.
dealers
N. Y. Stock
Exchange Arms
Other brokers
and dealers
Individuals
Others
All loans and repurchase agreements—Cumulative totals (in millions of dollars)
Number of banks
18,917
10,083
12,087
14,363
15,148
17,019
Total....
4 banks.
8 banks.
16 banks.
20 banks.
39 banks.
Loans
13,964
10,083
10,538
12,366
12,639
13,397
4,952
0
1,549
1,996
2,509
3,622
16,208
9,523
11,173
13,113
13,688
14,966
1,466
476
781
909
988
1,315
544
19
19
203
264
391
508
43
91
111
167
272
190
22
22
28
41
75
100
4
4
37
49
72
100
18
22
33
54
100
12
12
15
21
40
508
107
190
50
34
57
14
272
8
18
0
75
Cumulative percentage distribution of amount
100
53
64
76
80
90
Total
4 banks.
8 banks.
16 banks.
20 banks.
39 banks.
100
72
76
89
91
96
100
59
69
81
84
92
100
33
53
62
67
90
All loans and repurchase agreements (in millions of dollars)
Location of banks
Total
New York (14 banks)
California (4 banks).
Illinois (5 banks)
Missouri and Oklahoma (5 banks).
Pennsylvania (3 banks)
39 banks
100
0
31
40
51
73
18,917
11,894
814
768
658
1,107
17,019
13,964
11,723
360
521
132
32
13,397
4,952
171
454
248
526
1,074
3,622
16,208
10,773
813
662
284
761
14,966
1,466
815
0
4
148
332
1,315
544
149
1
61
152
0
391
(2)
(2)
Loans and repurchase agreements against the 2 H % bond (in millions of dollars) *
Total
New York (13 banks)
Calif., III., Mo., Okla. and Pa. (13 banks)
35 banks
1,324
742
256
1,127
1,081
737
145
984
244
5
HI
143
409
249
106
356
436
297
71
375
109
57
6
84
255
71
63
215
116
68
10
99
j includes loans and repurchase agreements o f $100,000 and over made after Dec. 31, 1957, and outstanding May 21 t 1958, or made between May 21 and July 30, 1958.
3
i Less than $500 000,
Includes (1) the par value of the new collateral consisting of
per cent bonds for loans and repurchase agreements made originally against
"rights " and (2) the original amount of credit extended, for loans and repurchase agreements made on or after June 16, 1958, against 2 H per cent bonds only.
TABLE A - 7 , COMMERCIAL BANKS
REPURCHASE AGREEMENTS AGAINST "RIGHTS" EXCHANGED INTO 2 % PER CENT BONDS
BY OCCURRENCE OF ADDITIONAL MARGIN REQUESTS1
[In millions of doltars]
Additional margin requested
Type of borrower
All borrowers
Govt. sec. dealers
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals
Others
All
repurchase
agreements
No
additional
margin
requested
When requested
Total
Points requested
After
agreeAt
time of ment,
After
agree- but be- 6/16/58
fore
ment
6/16/58
VA
VI-
va
1V4- 2*i2 VA 3%
129
93
36
0
5
31
6
0
24
6
0
24
97
7
1
1
19
67
7
0
1
5
30
2
()
1
0
0
0
0
0
0
0
5
0
0
0
5
25
2
()
I
0
0
6
0
0
0
0
0
0
0
0
5
19
0
0
0
0
5
()
1
0
0
0
0
0
0
2
1
Includes repurchase agreements of $100,000 and over made after Dec. 31, 1957 and outstanding May 21, 1958, or made between May 21 and July 30, 1958.
i Less than $500,000.
3 V4
and
over
TABLE A - 8 , COMMERCIAL BANKS
INITIAL MARGIN REQUIREMENTS ON LOANS 1
[In millions of dollars]
Initial margin
(in points) 2
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
AH loans 3
313,881
12,197
874
162
481
166
4,131
7,802
1,407
540
3,919
7,221
789
268
60
282
360
172
28
91
33
10
86
165
175
56
38
44
49
34
Less than 1 Vi
IV4-3%
3V4-50
5% or more
Against "rights" only
Total
723
528
129
15
47
3
Less than
515
146
57
5
442
85
1
0
43
39
46
1
11
2
1
1
18
19
8
2
2
3VS 5V4
Originally against "rights" only; later against 2%% bonds*
Total
Less than 1 Vi
Wi-Wj
%
3^-5
208
42
108
11
44
3
71
74
57
6
17
24
1
0
30
29
47
2
8
1
2
1
15
19
8
3
2
1
<3
Against 2 H % bonds only
Total
682
189
179
42
203
69
Less than 1 Vi
IV4-3H
105
449
121
8
12
162
15
0
5
140
32
2
5
26
10
1
58
99
42
4
25
22
22
1
m 5VA
5 H or more
Against other U. S. Govt, securities maturing in 1 year or less
Total
1,995
1,947
22
13
11
3
Less than 1 Vi
1V4-3W
3^-31/4
1,655
241
88
13
1,640
218
79
10
1
16
3
1
11
1
0
1
2
4
5
(4)
1
2
(4)
0
For footnotes see following page.
112
TABLE A - 8 , COMMERCIAL B A N K S — C o n t i n u e d
INITIAL MARGIN REQUIREMENTS ON LOANS 1
[In millions of dollars]
Initial margin
(in points) 2
AU
borrowers
Govt,
sec,
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
Against other U. S. Govt, securities maturing in 1-5 years
Total
426
387
13
6
14
Less than 1
93
285
40
7
93
270
23
1
0
1
8
4
0
2
4
0
9
3
2
Wi-VA
3 V4—5 V4
or m o r e . .
7
(44)
3
(4)
Against other U. S. Govt, securities maturing in over 5 years
Total
701
317
Less than 1 Vi •
49
315
229
108
37
236
29
14
5yi or m o r e . .
112
(214)
73
19
36
170
67
1
21
9
5
6
23
100
42
5
14
19
29
Against U. S. Govt, securities with mixed maturity®
Total
9,340
8,825
415
50
36
Less than 1&.
1,710
6,367
873
391
1,691
6,250
642
242
10
67
198
140
0
3
11
17
4
lVi-3%
3V4-5»/4
5Yi or m o r e . .
39
10
1
1 Includes loans of $100,000 and over made after Dec. 31, 1957 and outstanding May 21, 1958 or made
between May 21, 1958 and July 30, 1958.
2 Many banks reported margin requirements as percentage figures (which were treated as points) or
in 32ds or dollar amounts (which were converted to points).
3 Total excludes $83 million of loans on which information on initial margin requirements was not
reported.
« Less than $500,000.
5 Par value of new collateral consisting of 2%% bonds.
6 Excludes a small amount of loans against U. S. Government securities and other collateral not shown
separately.
113
TABLE A - 9 , COMMERCIAL BANKS
INITIAL MARGIN REQUIREMENTS ON REPURCHASE AGREEMENTS AGAINST COLLATERAL
OTHER THAN "RIGHTS" EXCHANGED INTO 25/g PER CENT BONDS 1
[In millions of dollars]
Initial marpin
(in points) 2
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
All repurchase agreements
Total
4,818
3,957
452
359
26
23
N o margin
J4 or less..
4,611
117
48
35
6
3,767
108
48
32
1
440
8
0
1
3
358
0
0
0
1
25
0
0
0
1
20
0
0
2
Ov«r
2lA..
(?)
Against "rights" only
Total
283
182
34
63
0
5
N o margin
U or less..
266
5
9
3
0
165
5
9
3
0
34
0
0
0
0
63
0
0
0
0
0
0
0
0
0
5
0
0
0
0
8-1
1W-2W...
Over 2V4 - •
Against 2%% bonds only
Total.
115
68
12
26
6
3
N o margin.
V4 or less...
102
8
0
0
4
68
0
0
0
0
0
8
0
0
3
26
0
0
0
1
5
0
0
0
1
3
0
0
0
0
X-l
n/4-21/4....
Over 2Va. . •
Against other U. S. Govt, securities maturing in 1 year or less
Total
3,152
2,887
10
240
10
4
N o margin.
Vi or less...
3,091
52
9
0
0
2,827
52
9
0
0
10
0
0
0
0
240
0
0
0
0
10
0
0
0
0
4
0
0
0
0
Over 2x/A ...
Against other U . S. Govt, securities maturing in 1-5 years
Total
546
363
175
6
0
2
N o margin.
or less...
<4-1
521
15
7
3
0
340
15
7
1
0
175
0
0
0
0
6
0
0
0
0
0
0
0
0
0
0
0
0
2
0
1W-2W-...
Over 2Va* • •
For footnotes see following page.
114
TABLE A - 9 , COMMERCIAL B A N K S — C o n t i n u e d
INITIAL MARGIN REQUIREMENTS ON REPURCHASE AGREEMENTS AGAINST COLLATERAL
OTHER THAN "RIGHTS" EXCHANGED INTO 2 K PER CENT BONDS *
[In millions of dollars]
Initial margin
(in points) 2
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
Total
312
183
93
17
10
9
N o margin
Vi or less..
252
15
13
29
2
124
15
13
29
1
93
0
0
I
0
16
0
0
0
P)
ooooo
Against other U. S. G o v t securities maturing in over 5 years
9
0
0
0
<*>
V4-1
1W-2V4...
Over 2 ^ . .
Against U. S. GovL securities with mixed maturity
Total
403
268
128
7
0
0
N o margin
Vi or less..
375
18
10
0
0
240
18
10
0
0
128
0
0
0
0
7
0
0
0
0
ooooo
ooooo
Over 2 % . .
i Includes repurchase agreements of 5100,000 and over made after Dec. 31, 1957 and outstanding May
21, 1958, or made between May 21, 1958 and July 30, 1958.
» See footnote 2 to Table A-8.
J Less than $500,000.
115
TABLE A - 1 0 , COMMERCIAL BANKS
MINIMUM MARGIN TO BE MAINTAINED ON LOANS 1
[In millions of dollars]
Minimum margin
(in points) 2
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
All loans 3
Total
Less than 1%
lVi-3Ya
m-sy4
313,881
12,197
874
162
481
166
4,893
7,933
979
75
4,632
7,271
284
10
73
338
452
11
36
86
33
7
99
191
165
27
53
48
45
20
Against "rights" only
Total
723
528
129
15
47
3
Less than 1
546
122
51
4
463
64
1
0
51
32
45
1
11
3
20
22
4
1
(4)
Wi-WA
5V4 or m o r e . .
I
1
2
1
0
Originally against "rights"; later against 2%% bonds5
Total
Less than 1%.
3^-5^
5Vi or m o r e . .
208
42
108
11
44
3
75
77
52
5
17
24
1
0
31
29
46
2
8
2
1
1
17
22
4
2
2
1
(4)
0
Against 2%% bonds only
Total
682
189
179
42
203
69
Less than 1&.
127
475
79
2
12
177
0
0
7
149
23
0
10
23
8
1
60
107
35
i
37
19
13
0
m-w
3 fe-5%
5V4 or m o r e . .
Against other U. S. Govt, securities maturing in 1 year or less
Total
1,995
1,947
22
13
11
3
Less than 1V4-
1,861
114
10
11
1,847
92
0
9
1
16
4
1
U
1
0
i
2
4
6
0
1
2
<4)
0
« : : : : :
5*4 or m o r e . .
Against other U. S. Govt, securities maturing in 1-5 years
Total
426
387
13
6
14
7
Less than
193
220
13
4
187
200
0
0
1
7
5
0
1
1
4
4
4
8
2
4
1
4
m-3V4
3 Yi-5VA
5Vi or m o r e . .
For footnotes see following page.
116
()
()
(>
2
0
TABLE A - 1 0 , COMMERCIAL B A N K S — C o n t i n u e d
MINIMUM MARGIN TO BE MAINTAINED ON LOANS 1
[In millions of dollars]
Minimum margin
(in points) 2
All
borrowers
Govt,
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Others
Against other U. S. Govt, securities maturing in over 5 years
Total
701
316
112
36
170
67
Less than 1*4
m - w
m-si/4
5^4 or more
59
373
223
47
37
275
3
1
2
31
76
4
4
19
10
3
10
33
107
21
6
16
27
18
Against U. S. Govt, securities with mixed maturity 6
Total
9,340
8,825
415
50
36
15
Less than 1 H
m - m
2,104
6,631
602
4
2,083
6,462
280
0
U
104
299
1
0
40
10
0
3
19
12
2
7
5
1
1
5V4 or more
t Includes loans of $100,000 and over made after Dec. 31, 19S7 and outstanding May 21, 1958, or made
between May 21, 1958 and July 30, 1958.
2 See footnote 2 to Table A-8.
3 Total excludes $83 million of loans for which information on minimum margin requirements was not
reported.
* Less than $500,000.
s Par value of new collateral consisting of 2% per cent bonds.
® Excludes a small amount of loans against U. S. Government securities and other securities not shown
separately.
117
TABLE A - 1 I , COMMERCIAL BANKS
LOANS AND REPURCHASE AGREEMENTS, BY TYPE OF BORROWER AND MANNER IN WHICH CREDIT WAS ARRANGED 1
Credit extended against June "rights" and 2%% bond of 1965
Credit extended against all other Government securities2
Percentage distribution of amount
Percentage distribution of amount
Type of borrower
Amount
(in
millions
of
dollars)
Arranged
directly
Arranged through
3rd party
Total
Previous
borrower
New
borrower
Previous
borrower
New
borrower
Amount
(in
millions
of
dollars)
All borrowers
1,997
100
68
1,018
473
169
257
81
100
100
TOO
100
100
87
72
49
10
19
15
I
20
12
26
3
36
2
8
Total
Previous
borrower
4
5
7
76
47
9,282
626
347
233
104
100
79
100
100
100
100
100
84
46
73
21
30
N. Y. Stock Exchange firms....
Other brokers and dealers
100
76
744
346
73
250
72
too
100
100
100
100
95
94
87
10
15
Previous
borrower
New
borrower
1
17
3
4
3
15
14
16
45
21
8
17
1
5
3
56
40
(*)
3
3
17
13
16
8
20
Loans
Loans
1,485
New
borrower
Loans and repurchase agreements
Loans and repurchase agreements
Govt. sec. dealers.
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals
Others
Arranged through
3rd party
Arranged
directly
1
1
9
13
22
17
6,399
100
88
0
5,727
287
84
213
100
100
100
100
100
92
90
76
19
23
5
2
76
53
7
1
7
5
57
44
Repurchase agreements
Govt. sec. dealers
N. Y. Stock Exchange firms
Other brokers and dealers
Individuals.....
Others
Repurchase agreements
512
100
44
21
24
12
4,193
100
65
1
33
1
274
127
96
7
9
100
100
100
100
100
66
13
21
23
47
1
71
7
0
53
18
12
61
0
0
14
4
11
77
0
3,555
339
263
20
16
100
100
100
100
100
70
9
72
36
65
(3>
5
3
0
19
29
83
22
13
0
1
3
3
51
16
j
|
i
1
Includes loans and repurchase agreements of $100,000 and over made after Dec. 31, 1957 and outstanding May 21, 1958 or made between May 21 and July 30, 1958,
except as indicated in footnote 2.
* Excludes credit against mixed collateral including "rights" and 2% per cent bonds, and also a small amount of loans against U. S. Government and other securities.
3 Less than 0.5 of 1 per cent.
TABLE A - 1 2 » COMMERCIAL BANKS
ORIGINAL EFFECTIVE INTEREST RATES ON LOANS 1
Interest rate (per cent per annum)
Amount
(in
millions
of
dollars)
All
loans
Under
Wi
UA-2
2-3
3-4
4-5
5
and over
Percentage distribution of amount
Government securities dealers
12,227
100
32
65
91
964
8,205
2,967
100
100
100
100
6
66
34
17
37
28
64
81
(2)
0
0
0
1
57
4
1
1
N. Y. Stock Exchange firms
912
100
3
3
82
11
1
0
44
94
534
240
100
100
100
100
0
23
1
0
I
6
3
3
44
64
85
86
30
7
tl
11
26
0
0
(2)
0
0
0
0
Other brokers and dealers
178
100
14
25
36
23
2
0
17
31
94
36
100
100
100
100
3
15
8
32
0
21
25
42
70
27
42
14
9
37
25
12
18
0
(2)
0
0
0
0
0
Individuals
481
too
0
1
52
38
8
1
99
53
174
155
100
100
100
100
0
0
0
0
0
0
3
0
7
34
68
68
65
53
24
31
27
10
3
1
( )
4
2
0
2
Others
166
100
0
2
42
53
3
0
25
22
58
60
100
100
100
100
0
0
0
0
1
0
3
1
3
56
32
63
84
44
61
36
11
0
4
1
0
0
0
0
i Includes loans of $100,000 and over made after Dec. 31, 1957 and outstanding May 21, 1958. or made
between May 21 and July 30, 1958.
* Less than 0.5 of 1 per cent.
120
TABLE A - 1 3 , COMMERCIAL BANKS
ORIGINAL EFFECTIVE INTEREST RATES ON REPURCHASE AGREEMENTS I
Interest rates (per cent per annum)
Period
(1958)
Amount
(in
millions
of
dollars)
All
agreements
Under
Vi
Vi-1
1V4-2
2-2%
2Vi and
over
Percentage distribution of amount
Government securities dealers
3,981
100
3
51
35
10
1
(2)
25
474
1,992
1,491
100
100
100
100
0
15
1
2
0
76
40
59
20
5
42
34
4
(2)
17
5
<2)
69
4
7
0
(2)
0
0
N. Y. Stock Exchange firms
554
100
0
47
12
1
36
4
80
123
122
229
100
100
100
100
0
0
0
0
0
12
57
75
0
0
12
23
0
0
5
1
89
82
22
I
11
6
4
0
Other brokers and dealers
366
100
1
51
37
5
3
3
9
75
139
144
100
100
100
100
0
5
0
0
0
92
20
62
0
0
70
27
0
1
4
8
89
1
1
0
11
0
4
3
Individuals
( )
26
100
0
0
9
0
19
72
6
10
10
100
100
100
100
0
0
0
0
0
0
0
0
0
0
24
0
0
0
0
0
0
0
48
0
100
100
28
100
4
12
31
53
33
0
0
~0
0
29
33
60
0
33
40
71
3
Others
24
100
0
0
3
11
10
100
100
100
0
0
0
0
~0
0
0
1 Includes repurchase agreements of $100,000 and over made after Dec. 31, 1957 and outstanding May
21,2 1958, or made between May 21 and July 30, 1958.
Less than 0.5 of 1 per cent.
3 Less than $500,000.
121
TABLE A - 1 4 , COMMERCIAL BANKS
ORIGINAL EFFECTIVE INTEREST RATES ON LOANS AND REPURCHASE AGREEMENTS AGAINST JUNE "RIGHTS" O N L Y 1
Loans
Repurchase agreements
Interest rate (per cent per annum)
Period
(1958)
Amount
(in
millions
of
dollars)
All
loans
Under
l'A-2
1
2-3
3-4
Interest rate (per cent per annum)
4 and
over
Amount
(in
millions
of
dollars)
All
loans
Under
535
0
45
510
100
100
100
78
79
2
18
83
167
100
13
Mar.-Apr.,
May
June
6
40
121
100
0
100
100
52
(2)
206
100
15
58
12
2
13
(»>
(2>
13
8
125
72
100
100
100
0
21
5
0
60
61
0
4
27
0
0
7
100
14
0
(2)
0
10
4
Total.
31
100
818
100
100
100
0
0
0
0
0
0
N. Y. Stock Exchange firms
80
116
100
17
81
95
34
94
68
33
15
100
100
100
0
100
49
67
46
33
Other brokers and dealers
Other brokers and dealers
April.
May..
June..
and
over
12
N. Y. Stock Exchange firms
Total
m-2
Government securities dealers
Government securities dealers
Mar.-Apr.,
May
June
I-IV4
Percentage distribution of amount
Percentage distribution of amount
Total
x-t
16
2
46
36
0
69
100
0
86
0
0
13
1
0
0
28
0
0
3
0
40
51
100
60
18
0
0
0
8
61
I
100
100
100
0
0
0
0
98
0
0
0
0
0
0
0
100
2
0
0
0
100
Individuals and others
Individuals and others
Total
50
100
0
0
0
57
34
8
April
May
5
23
22
100
100
100
0
0
0
0
0
0
0
0
0
4
59
67
77
38
21
19
3
12
6
<J)
2
4
100
0
0
0
0
71
29
100
100
100
0
0
0
0
0
0
0
0
0
0
0
0
0
42
100
100
58
0
1 Includes loans and repurchase agreements against June "rights" amounting to $100,000 and over made after Dec. 311 1957 and outstanding May 21, 1958, or made
after May 21.
2 Less than 0.5 of 1 per cent.
3 Less than $500,000.
INFORMATION SUPPLIED BY
YOU WILL NOT BE PUBLISHED
IN A MANNER THAT WILL
REVEAL THE INDIVIDUAL
OPERATIONS OF YOUR BANK.
Budget Bureau No. 55-5902
TREASURY-FEDERAL RESERVE QUESTIONNAIRE
TO COMMERCIAL BANKS
STUDY OF GOVERNMENT SECURITIES MARKET
(Bank identification code)_
(Dollar amounts in
thousands)
1. Total loans for purchasing or carrying U. S. Government securities (including
repurchase agreements) outstanding at close of business:
(a) October 30, 1957
(b) June 18, 1958
(c) July 30, 1958
(number of loans_
(number of loans_
(number of loans_
2 Amount of exchange subscriptions to the 2%% bond tendered for your
account in the Treasury refunding of June 1958 but subject to agreement
(i.e., repurchase agreement) to resell such securities to:
(a)
(b)
(c)
(d)
(e)
Government security dealers
Other dealers and brokers
Nonfinancial business corporations.
Individuals
Other (specify
„
_
Total.
March 1959.
INFORMATION SUPPLIED BY
YOU WILL NOT BE PUBLISHED
IN A MANNER THAT WILL
REVEAL THE INDIVIDUAL
OPERATIONS OF YOUR BANK.
Budget Bureau No. 55-5901
TREASURY-FEDERAL RESERVE QUESTIONNAIRE
TO COMMERCIAL BANKS
STUDY OF GOVERNMENT SECURITIES MARKET
PLEASE COMPLETE THIS FORM FOR EACH LOAN (AND REPURCHASE
AGREEMENT*) OF S 100,000 OR MORE FOR PURCHASING OR CARRYING
U. S. GOVERNMENT SECURITIES (A) MADE AFTER DECEMBER 31, 1957
A N D OUTSTANDING AT CLOSE OF BUSINESS ON MAY 21, 1958 OR (B)
ORIGINATING BETWEEN MAY 21 A N D JULY 30, 1958, INCLUSIVE.
(Bank identification Code) .
(Dollar amounts in
thousands)
1. Original amount of loan (if repurchase agreement, enter amount originally
paid for securities)
2. (a) Collateral loan
(b) Repurchase agreement
•
(1)
(check one)
• (2)
3. Date made
(a) Was loan or repurchase agreement arranged directly with borrower
(b) Was loan or repurchase agreement arranged through a third party
•
(1)
(check one)
Q (2)
4. Date loan or repurchase agreement actually terminated, unless still outstanding. If still outstanding, so state
5. Original effective interest rate on loan or repurchase agreement (to nearest Vfc
per cent)
124
per cent
6. Contract maturity of loan (or repurchase agreement):
(a) Demand (or call)
fb) Fixed maturity
(c) Other maturity terms not covered above
(specify
(d) If 6(b) checked, give date.
(check one)
• 0)
• (2)
•
(3)
7. Type of borrower (seller in case of repurchase agreement):
(a) Government security dealer i
(b) Member of New York Stock Exchange *
(c) Other dealer or broker
fd) Individual
(e) Other (specify
(check one)
• (1)
• (2)
• (3)
• (4)
• (5)
8. Had credit been previously extended to this borrower for similar purposes?..
•
(1) yes; •
9. Original collateral consisted of:
(a) "Rights" to June Treasury refunding (2H% bond, 2%% note, and 2y 4 %
bond, all due June 15, 1958)
(1) If loan or repurchase agreement against rights not paid off by June
16, 1958, the settlement date for the refunding, indicate amount
of new collateral which consisted of 2%% bond
•
(I)
(b) 2%% bond of 1965 (where loan or repurchase agreement originated on
or after June 16, 1958)
(c) Other U. S. Government securities having a maturity at the time of the
loan or repurchase agreement of:
(1) I year or under
(2) Over 1 year to 3 years
(3) Over 3 years to 5 years
(4) Over 5 years to 10 years
(5) Over 10 years
10. Margin obtained (on loans only):
(a) What was the original margin in the loan to the nearest point? If none
report zero
(b) Was there an agreement at the time loan originated to maintain a minimum
margin?
(c) If "yes" checked against 10(b), indicate amount to the nearest point
(d) If "no" checked against 10(b), were there calls for cash or additional
collateral?
(e) If "yes" checked against 10(d), give date of first call
11. In case of repurchase agreement made initially against "rights", subsequently
exchanged into 2%% bonds, was any additional margin requested?
(a) If "yes", how much? (Indicate to nearest
of a point)
(b) If "yes", were arrangements for additional margin made:
(1) At time of original agreement
(2) Between origin of agreement and June 16, 1958
(3) After June 16, 1958
12. In case of repurchase agreement other than specified in Item 11 was any initial
margin (i.e., excess of market value over price actually paid for security)
required?
(a) If "yes", how much? (Indicate amount to nearest quarter of a point)...
(2) no
S
• 0)
•
(check one
(I)
or more)
• (1)
• (1)
• (I)
• (1)
points
•
(1) yes; •
(2) no
points
•
(1) yes; •
(2) no
•
(t) yes; •
(2) no
points
•
(1)
•
(2)
•
•
(check one)
(3)
(1) yes; •
(2) no
points
March 1959
* Include as repurchase agreements any buybacks, turnabouts, overnights, and similar transactions
by whatever name.
t Check only item 7(a) if borrower is a Government security dealer and also a member of New York
Stock Exchange.
125
Appendix B
Nonfinancial Business Corporations
EXPLANATORY NOTES
The 145 nonfinancial business corporations included in the survey
were in general large companies known to have substantial holdings of United States Government securities. As a group, they
accounted for about one-half of all corporate holdings of such securities at the end of June 1958 and for nearly three-fourths of
all corporate subscriptions to the 2% per cent bonds offered in
June 1958. The definition of nonfinancial business corporations
used here encompasses all types of incorporated businesses except
banks and insurance companies. In accordance with this definition, the group of 145 corporations includes two sales finance
companies and one large investment company.
These 145 corporations were asked for two types of information:
First, they were asked to provide detailed figures on their holdings of United States Government securities as of the end of April,
May, June, and July 1958, broken down as between holdings
under repurchase agreements and outright holdings, with each of
these broad classifications further subdivided according to type of
security (see Form 55-5909, pages 132-33). They were also asked
to indicate on this form the volume of their exchanges of June
"rights" into the 2% per cent bond offered in June 1958. The information provided is summarized in Tables B-l and B-2.
Second, they were asked to complete a separate report (see
Form 55-5908, page 134) for each repurchase agreement of $100,000 or more on United States Government securities that either
was outstanding on May 21, 1958, or was made between May 21
and July 30, 1958. For each such repurchase agreement, information was requested on par value, date when the agreement was
made, date when it was terminated, type of United States Gov126
ernment security held under the agreement, type of borrower with
whom the agreement was made, and other characteristics such as
interest rate, contract maturity, and margin. Information available from these reports is summarized in Tables B-3-B-6.
As an examination of Tables B-3-B-6 and Form 55-5908 will
indicate, the summary data presented for repurchase agreements
do not cover all the detailed information that was requested and
provided. The survey revealed that, among nonfinancial corporations, the volume of participation in repurchase agreements during the survey period, as well as the characteristics of those agreements, depended primarily upon individual company practice. In
view of the importance of individual company practice, its variation from company to company, and the relatively small number
of companies reporting any repurchase agreements during the survey period, tabulations of the survey results are meaningful only
for fairly broad groupings of the data. More detailed tabulations,
though they might appear statistically significant in terms of the
dollar volume of repurchase agreements involved, would tend to
reflect the activities of some single company operating in a way
largely peculiar to itself.
TABLE B - L , NONFINANCIAL BUSINESS CORPORATIONS
EXCHANGES OF JUNE "RIGHTS" INTO 2%
PER CENT BONDS
[In millions of dollars]
Type of corporation
Total
Under
repurchase
agreements
From
outright
holdings
Total (145 corporations)
763
368
395
Manufacturing corporations
Nonmanufacturing corporations
481
283
160
208
321
75
127
TABLE B - 2 , NONFINANCIAL BUSINESS CORPORATIONS
HOLDINGS OF U . S . GOVERNMENT SECURITIES AS REPORTED BY 145 BUSINESS CORPORATIONS
(In millions of dollars]
Held outright
Held under
repurchase agreement
Date
(19J8)
Marketable securities maturing
within 1 year
Total
Total
June
"rights"
2H% Other
Total
bonds
Total
June
"rights"
Marketable sec.
maturing 1 yr. and over Nonmarketable
securities
2
H
%
Total
bonds Other
Bills
Certs.
Other
1,871
2,202
1,835
2,349
1,599
1,620
2,035
1,954
1,378
1,468
1,536
1,652
529
576
718
749
131
131
529
576
587
618
20
20
20
20
1,169
1,189
1,524
1,483
1,009
1,088
1,152
1,270
381
408
495
530
79
80
381
408
416
450
19
19
19
19
430
430
511
471
370
381
383
382
223
219
52
51
148
168
172
168
Total
Apr.
May
June
July
30
31.
30.
31.
8,073
8,653
7,127
7,634
1,081
1,584
984
911
283
185
21
993
1,301
799
890
6,993
7,069
6,143
6,724
6,443
6,474
5,406
5,955
1,596
1,183
Manufacturing corporations
Apr.
May
June
July
30.
31.
30.
31.
6,351
6,843
5,580
6,210
1,004
1,218
856
865
58
111
103
19
946
1,107
753
846
5,346
5,626
4,724
5,345
4,946
5,199
4,211
4,796
1,217
978
1,552
1,944
1,535
2,043
Nonmanufacturing corporations
Apr.
May
June
July
30
31
30
31
1,722
1,810
1,547
1,424
76
366
128
46
30
172
82
2
46
194
46
1,646
1,444
1,419
1,379
1,497
1,275
1,195
1,159
378
205
319
259
300
306
148
168
TABLE B - 3 , NONFINANCIAL BUSINESS CORPORATIONS
VOLUME OF REPURCHASE AGREEMENTS ORIGINATED BV TYPE OF U . S . GOVERNMENT SECURITY 1
[In millions of dollars]
Amount of repurchase agreements
Type of
U. S. Govt, security
Number
of
companies
reporting
Originated (1958)
Total
Outstanding
May 21,
1958
May 22May 31
June IJune 15
June 16June 30
July I July 30
All borrowers
Total.
32
4,394
1,548
448
874
596
928
June "rights"
Bills
Certificates
Notes and bonds with maturities of:
Less than 15 months
15 months to 2 years.
More than 2 years
Mixed types
24
14
20
579
2,126
545
214
1,053
66
142
117
28
224
279
71
227
78
451
302
15
6
19
3
405
21
695
23
87
0
129
0
64
16
77
5
180
5
106
10
31
0
257
3
43
0
127
5
873
Government securities dealers
hi
NO
Total.
24
4,068
1,498
431
775
491
June "rights"
Bills
Certificates
Notes and bonds with maturities of:
Less than 15 months
15 months to 2 years
More than 2 years
Mixed types
15
12
18
440
2,111
511
173
1,053
66
129
117
28
138
278
68
227
74
12
6
14
2
384
21
582
20
87
0
120
0
60
16
77
5
173
5
104
10
27
0
164
0
|
'
437
275
38
0
118
5
i Includes repurchase agreements of $100,000 and over outstanding May 21, 1953, or made between May 21 and July 30, 1958.
NOTF.—Data on repurchase agreements with borrowers other than Government securities dealers, that is, with N, Y. Stock Exchange members or with other brokers anil
dealers, are not shown separately because of small volume of agreements made in each period.
TABLE B - 4 , NONFINANCIAL BUSINESS CORPORATIONS
VOLUME OF REPURCHASE AGREEMENTS TERMINATED, BY TYPE OF U , S . GOVERNMENT SECURITY
[Tn millions of dollars]
Type of U. S. Govt.
security *
Total
May 22May 31
June I June 15
June 16
June 17June 30
July
After
July 2
AU borrowers
Tola!.
4,394
428
802
807
440
1,022
897
June *"rights"
Bills.
Certificates
Notes and bonds with maturities of:
Less than 15 months
15 months to 2 years
More than 2 years
Mixed types
579
2,126
545
79
198
7
101
335
76
315
210
57
3 24
237
59
361
334
296
0
812
52
405
21
695
23
69
10
65
0
103
10
163
15
158
0
68
0
14
2
105
0
57
0
266
8
5
0
28
0
Government securities dealers
Total....
4,068
415
775
699
425
June "rights"
Bills
Certificates
Notes and bonds with maturities of;
Less than 15 months
15 months to 2 years
More than 2 years
Mixed types
440
2,111
511
75
198
7
86
335
74
208
209
57
3 10
237
59
361
325
268
0
807
47
384
21
582
20
69
10
56
0
93
10
163
15
158
0
68
0
13
2
105
0
52
0
172
5
0
0
18
0
' Classification by type of security is according to collateral at time repurchase agreement was made.
Includes no repurchase agreements made after July 30.
3 Collateral consisted of 2 H per cent bonds after June 16.
NOTE.—See notes to Table B-3. All dates are 1958.
2
883
872
TABLE B - 5 , NONFINANCIAL BUSINESS CORPORATIONS
CONTRACT MATURITY TERMS OF REPURCHASE AGREEMENTS
BY TYPE OF U . S . GOVERNMENT SECURITY
[In millions of dollars]
Type of
U. S. Govt, security
June "rights"
Notes and bonds with maturities of more than 2 years.
Other types
Total amount
outstanding.
May 21, 1958,
or made between
May 21 and
July 30, 1958
Fixed
Demand
Other»
4,394
3,689
584
121
579
695
3,120
465
319
2,905
77
293
215
38
83
0
Contract maturity terms
i Includes primarily agreements payable on demand after a stated date.
TABLE B - 6 , NONFINANCIAL BUSINESS CORPORATIONS
INITIAL MARGIN REQUIRED ON REPURCHASE AGREEMENTS
B Y TYPE OF U . S . GOVERNMENT SECURITY 1
Type of
U. S. Govt, security
Total
N o initial
margin
required
Initial imargin
requ ired
1 point
or less
More than
1 point
Amount of repurchase agreements
On millions of dollars)
June "rights"
Securities with maturities of less than 15 months 2
Securities with maturities of 15 months or more
4,310
3,480
605
225
495
3,099
716
426
2,668
387
66
297
242
3
135
87
Number of companies 3
June "rights"
Securities with maturities of less than 15 months 2
Securities with maturities of 15 months or more
31
27
11
3
21
24
20
18
21
16
4
7
8
3
2
1
Excludes repurchase agreements under June "rights," held by six companies in the amount of $85
million, that were not terminated until after June 16, 1958. Such agreements represented all repurchase
agreements held by one company and all agreements under "rights" held by two additional companies.
2 Includes repurchase agreements collateralized by bills, certificates, bonds, and notes with maturities
of less than 15 months, or by some combination of these maturities.
3 Figures on number of companies do not add to totals because of multiple counting.
131
INFORMATION SUPPLIED BY
YOU WILL NOT BE PUBLISHED
IN A MANNER THAT WILL
Budget Bureau No. 55-5909
REVEAL THE INDIVIDUAL
OPERATIONS OF YOUR
CORPORATION.
TREASURY-FEDERAL RESERVE QUESTIONNAIRE
TO BUSINESS CORPORATIONS
STUDY OF GOVERNMENT SECURITIES MARKET
PLEASE REPORT AGAINST ITEMS 1 A N D 2, AS CLASSIFIED BELOW, THE
PAR VALUE OF U. S. GOVERNMENT SECURITIES HELD U N D E R REPURCHASE AGREEMENT* AND/OR OWNED OUTRIGHT AS OF THE CLOSE
OF BUSINESS ON THE DATES INDICATED.
(Corporation identification code) _
Par value (in thousands of dollars)
1958
1. Held under repurchase agreements*
(a) 2%% Note of June 1958
(b) 2 H % Bond of June 1958
(c) 2*4% Bond of June 1958-63
(d) 2%% Bond of February 1965
(e) Other
(f)
Total
2. Owned outright
(a) Treasury bills
(b) Treasury certificates
(c) Treasury notes
(1) 2%% Note of June 1958
(2) 1H% Note of February 1959
(3) All other notes
(d) Treasury Bonds
(1) 2%% Bond of June 1958
(2) 2Va% Bond of June 1958-63
(3) 2Vd% Bond of Sept. 1956-59
(4) 2H% Bond of March 1957-59
(5) 2 B o n d of Dec. 1958
(6) 2 H % Bond of Feb. 1965
(7) All other marketable bonds
(8) Investment Series Bonds (A&B)
(Nonmarketable)
(9) U. S. Savings Bonds (Maturity value)
(Nonmarketable)
(10) Total U. S. Government Securities owned
outright (Marketable and Nonmarketable)..
April 30
May 31
June 30
July 31
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
* Include as repurchase agreements any buy-backs, turnabouts, overnights, and similar transactions
by whatever name.
132
NOTE:—PLEASE REPORT AGAINST ITEMS 3, 4, A N D 5 THE APPROPRIATE INFORMATION
CONCERNING YOUR EXCHANGE SUBSCRIPTIONS (TENDERED DIRECTLY OR
THROUGH AN AGENT) TO THE 2%% BOND OF 1965 IN THE TREASURY REFUNDING OF JUNE 1958.
Par value (in thousands of dollars)
3. Amount of exchange subscriptions to the 2%% bond representing
securities owned outright
4. Amount of exchange subscriptions subject to agreement (i.e.,
repurchase agreement*) to resell 1such securities to:
(a) Government security dealers
(b) Member of New York Stock Exchange *
(c) Other dealers or brokers
(d) Individuals
(e) Others (Specify
).
(f)
Total
5. Total amount of exchange subscriptions to the 2%% bond (sum
of items 3 and 4(f))
* Include as repurchase agreements any buy-backs, turnabouts, overnights, and similar transactio n
by whatever name.
1
Classify as a Government security dealer if also a member of the New York Stock Exchange.
133
Budget Bureau No. 55-5908
INFORMATION SUPPLIED BY
YOU WILL NOT BE PUBLISHED
IN A MANNER THAT WILL
REVEAL THE INDIVIDUAL
OPERATIONS OF YOUR
CORPORATION.
TREASURY-FEDERAL RESERVE QUESTIONNAIRE
TO BUSINESS CORPORATIONS
STUDY OF GOVERNMENT SECURITIES MARKET
PLEASE COMPLETE THIS FORM FOR EACH REPURCHASE AGREEMENT* OF
$100 000 OR MORE ON U. S. GOVERNMENT SECURITIES EITHER OUTSTANDING ON MAY 21, 1958 OR MADE BETWEEN MAY 21 A N D JULY 30, 1958.
(Corporation identification Code)_
(Dollar amounts in
thousands)
1. Amount of repurchase agreement (Par value).
2. Date made
3. Date agreement actually terminated
4. Contract maturity:
(a) Demand
(b) Fixed maturity
(c) Other maturity terms not covered above (specify_
(d) If 4(b) checked, give date
• (1)
(check one)
• (2)
• (3)
5. Interest rate at time repurchase agreement was made (to nearest % per
cent)
Securities held under the agreement:
(a) "Rights" to the June Treasury refunding (2H% bond, 2%% note and
2%% bond, all due June 15, 1958)
(1) If repurchase agreement against "rights" not paid off by June 16,
1958, the settlement date for the refunding, indicate amount of
new collateral which consisted of 2%% bonds
(b) Other U. S. Government Securities:
(1) Bills
(2) Certificates
Notes and bonds with maturities of:
(3) Less than 15 months
(4) 15 months to 2 years
(5) More than 2 years
7. Type of borrower
(a) Government security dealer*
(b) Member of the New York Stock Exchange i .
(c) Other dealer or broker
(d) Other (specify
8. In case of repurchase agreement made initially against "rights", subsequently
exchanged into 2%% bonds, was any additional margin requested?
(a) If yes, how many points
(b) If yes, were arrangements for additional margin made:
(1) At time of original agreement
(2) Between origin of agreement and June 16, 1958
(3) After June 16, 1958
9. In case of repurchase agreement other than specified in Item 8 was any initial
margin (i.e., excess of market value over price actually paid for security)
required?
(a) If *'yes", how many points. (Indicate amount to nearest quarter of a
point)
per cent
•
0)
• (1)
• (1) (check one
or more)
• 0)
• (1)
• (1)
(check one)
• (1)
• (2)
• (3)
• (4)
• (1) yes; • (2) no
points
• (1)
D(2)
• (3)
• (1) yes; • (2) no
points
* Include as repurchase agreements any buybacks, turnabouts, overnights, and similar transactions by
whatever name.
i Check only item 7(a) if borrower is a Government security dealer and also a member of the New York
Stock Exchange.
March 1959.
134
Appendix C
United States Government Securities Dealers
EXPLANATORY NOTES
The survey of primary Government securities dealers covered 17
firms. These include 12 nonbank dealers and 5 dealer banks.1
All of the nonbank dealers have their central trading office in New
York City. Three of the dealer banks are located in New York
City and two in Chicago.
Information requested from dealers (see Form 55-5903 on pages
148-49) is summarized in the tables that follow. Table C-l shows
dealers' positions in United States Government securities as of each
Wednesday from October 30, 1957 through December 31, 1958,
while Table C-2 shows their weekly volume of transactions (purchases plus sales, excluding transactions under repurchase agreements but including allotments of new Treasury issues) for the
same period. Outstanding loans and repurchase agreements against
United States Government securities, as of the same dates as in
Table C-l, are shown in Table C-3. A summary by weeks of
forward delivery sales of United States Government securities
made over the period April 1-July 30, 1958, is presented in Table
C-4. Finally, Tables C-5 and C-6 show, for each business day
from May 21, 1958 through July 30, 1958, the dealers' long and
short positions in the issues involved in the Treasury's June 1958
exchanges, and their transactions in those issues with different
types of customers.
The processing and analysis of data received from dealers participating in this study presented technical problems in classifying
certain information in this highly specialized field, particularly
1
A dealer bank is a separate department within a commercial bank which performs the role of a primary dealer in United States Government securities.
135
with respect to dealers' repurchase agreements. There are varied
definitions of that term and also varied interpretations of the use
of the instrument. The principal questions were (1) whether to
include all forms of dealer repurchase agreements as dealer borrowings and (2) whether to include the securities underlying those
agreements in total position figures. The inclusions have been
made for the purpose of this study.
However, dealer responses contained reservations concerning
the classification of all repurchase agreements as a form of borrowing. It was claimed that repurchase agreements that run for
a period greater than 15 days should be excluded from borrowings and from dealer positions because (1) the underlying transaction took the form of an investment transaction from the standpoint of the dealer's customer and (2) the securities involved were
not for sale by dealers during the term of the agreement. Since
data were not requested from dealers in a form that would provide
the term of the agreement or the securities involved, no attempt is
made in the summary data to classify such agreements. Therefore, the tables covering dealers' positions reflect more than just
current inventory for sale because they include the commitments
to repurchase securities at a future date under so-called long-term
repurchase agreements. Such agreements account for a substantial portion of dealers' total repurchase agreements, and also a
large part of dealers' commitments in short-term securities, particularly Treasury bills.
Data on dealer positions (Table C-l) include, in addition to
repurchase agreements, other commitments to purchase on future
dates, and therefore do not correspond with the data on loans
and repurchase agreements (Table C-3). That disparity is further increased by other technical considerations: (1) positions
for a given date include new commitments originating under
ordinary trading arrangements (next day delivery) and consequently there would be a 1-day lag in the reflection of these contracts in dealers' financing; (2) delivery of securities and related
financing might be delayed by special arrangements or by a delivery
failure but dealer commitments in such securities would be re136
fleeted in positions; and (3) activity in securities on a when-issued
basis (prior to date of issuance) would be reflected in dealers' positions but no financing is required until payment date.
As indicated in the foregoing paragraphs, data on dealer long
positions as shown in the tables include not only physical ownership of United States Government securities but also commitments
to purchase at a future date. The data on dealer short positions
represent sales of securities not yet purchased. The fulfillment of
delivery commitments on short positions ordinarily would be completed by borrowing securities from others until such time as the
specific securities are purchased. Frequently, these short positions would be hedged by a long position in a comparable maturity.
137
TABLE C - L , U . S . GOVERNMENT SECURITIES DEALERS
to
00
POSITIONS IN U . S . GOVERNMENT SECURITIES, BY TYPE OF SECURITY
[In millions of dollars]
Certs., notes & bonds
due within 1 year
Bills
Total
Notes & bonds due
in 1 to 5 years
Bonds due
over 10 years
Bonds due in
5 to 10 years
Date
Long
Short
1,861
109
Net
Net 1
Long
1,752
1,694
939
Short
Net
Long
Short
Net
Long
Short
Net
Long
Short
Net
Long
Short
Net
1957
Oct. 3 0 . . . .
Nov.
Dec.
919
401
393
406
36
370
-14
94
810
890
1,188
966
331
428
667
850
303
397
659
839
366
359
343
534
43
56
58
49
323
303
285
485
-11
-22
88
78
76
133
70
63
59
121
107
100
99
92
96
91
87
75
68
72
6 . . . . 1,703
1 3 . . . . 1,862
2 0 . . . . 2,343
2 7 . . . . 2,554
208
231
147
132
1,495
1,631
2,196
2,422
1,437
1,539
2,074
2,350
901
980
1,222
1,010
91
90
34
44
4 . . . . 2,423
2,630
11
2,693
18
2,799
24
3 1 . . . . 2,874
150
136
214
129
123
2,273
2,494
2,479
2,670
2,751
2,219
2,448
2,478
2,669
2,747
1,010
1,278
1,430
1,457
1,510
64
48
121
43
49
946
1,230
1,309
1,414
1,461
798
804
737
790
795
795
797
728
788
791
486
425
388
420
451
44
58
55
58
43
442
367
333
362
408
5
n
1958
Jan.
8
15....
22....
29....
2,724
2,662
2,192
2,077
121
149
138
185
2,603
2,513
2,054
1,892
2,603
2,513
2,049
1,867
1,385
1,331
1,038
889
53
25
28
50
1,332
1,306
1,010
839
776
852
733
746
768
829
717
692
462
376
311
359
32
78
66
29
430
298
245
330
19
28
32
14
12
19
27
— 15
82
75
78
69
61
61
55
46
Feb.
5 . . . . 2,302
1 1 . . . . 2,592
1 9 . . . . 2,558
2 6 . . . . 2,617
218
190
201
208
2,084
2,402
2,357
2,409
2,059
2,374
2,328
2,370
813
1,151
1,225
1,346
92
101
93
92
721
1,050
1,132
1,254
625
563
557
596
595
537
518
540
393
442
383
348
54
35
44
34
339
407
339
314
181
220
180
107
163
205
168
98
290
216
213
220
266
203
200
203
Mar.
5....
12....
19....
26....
2,932
2,863
2,912
2,470
214
114
119
105
2,718
2,749
2,793
2,365
2,679
2,719
2,763
2,332
1,531
1,531
1,606
1,379
114
34
31
20
1,417
1,497
1,575
1,359
633
614
709
526
619
610
688
521
350
330
282
282
54
49
38
34
296
281
244
248
201
193
136
98
187
183
124
74
217
195
179
185
199
178
162
163
Apr.
2....
9....
16....
23....
30....
2,255
2,840
3,118
3,417
2,935
134
220
126
162
218
2,121
2,620
2,992
3,255
2,717
2,101
2,597
2,966
3,229
2,691
1,310
1,713
1,687
1,979
1,641
43
49
62
70
82
1,267
1,664
1,625
1,909
1,559
416
513
615
536
483
390
497
606
511
457
240
302
496
545
496
33
116
41
37
56
207
455
508
440
109
94
105
135
108
103
79
104
119
64
180
218
215
222
207
154
194
202
208
197
186
May
7....
14
21....
28
2,556
2,650
2,478
2,685
242
264
216
251
2,314
2,386
2,262
2,434
2,293
2,365
2,239
2,410
1,307
1,376
1,226
1,357
107
91
80
81
1,200
1,285
1,146
1,276
494
563
584
715
31
44
46
59
463
519
538
656
464
451
433
379
59
83
46
56
405
368
387
323
99
88
74
75
June 4
11....
18
25....
3,111
3,258
3,538
2,798
446
181
127
175
2,665
3,077
3,411
2,623
2,650
3,063
3,400
2,617
1,458
1,626
1,774
1,214
137
56
24
62
1,321
1,570
1,750
1,152
1,069
583
724
671
32
14
9
8
1,037
569
715
663
334
426
413
423
48
65
57
61
286
361
356
362
85
411
400
281
July
2....
9....
16....
23....
30....
2,658
2,739
2,403
2,006
1,851
263
317
312
542
581
2,395
2,422
2,091
1,464
1,270
2,394
2,421
2,090
1,463
1,269
1,330
1,484
1,267
1,227
1,142
133
163
105
240
190
1,197
1,321
1,162
987
952
579
555
530
315
287
18
20
32
71
184
561
535
498
244
103
364
334
294
218
197
53
76
85
132
110
311
258
209
86
87
216
207
180
142
135
36
43
48
46
42
Aug.
6 . . . . 2,192
1 3 . . . . 1,984
2 0 . . . . 1,786
2 7 . . . . 1,718
397
422
492
522
1,795
1,562
1,294
1,196
1,795
1,562
1,286
1,146
1.446
1,332
1,275
1,274
122
113
218
233
1,324
1,219
1,057
1,041
317
303
217
173
71
79
67
90
246
224
150
83
212
170
141
128
113
114
112
99
99
56
29
29
137
107
98
93
27
25
23
23
72
63
51
52
192
172
161
159
18
21
21
32
174
151
140
127
187 - 1 0 2
22
389
10
390
265
16
165
212
227
209
42
24
27
28
123
188
200
181
180
164
132
96
93
169
159
132
104
90
23
15
42
53
55
146
144
90
51
35
22
44
28
38
115
63
70
55
80
72
55
50
69
72
67
62
-12
-12
11
—
Sept. 3
10....
17....
24....
1,603
1,726
1,268
1,341
528
482
632
549
1,075
1,244
636
792
983
1,148
515
573
1,068
1,192
911
914
239
112
202
148
829
1,080
709
766
260
259
89
141
82
146
173
160
178
113
— 84
-19
133
133
119
140
98
110
124
115
35
23
-5
25
89
88
82
81
44
45
57
58
45
43
25
23
53
54
67
65
65
69
76
68
-12
-15
-9
-3
Oct.
1
8....
15....
22....
29....
1,284
1,480
1,409
1,220
1,165
457
320
279
281
242
827
1,160
1,130
939
923
677
995
1,007
800
729
850
1,036
925
746
695
180
108
65
77
61
670
928
860
669
634
154
159
210
229
253
56
24
39
47
47
98
135
171
182
206
128
126
126
107
84
110
74
72
54
54
18
52
54
53
30
81
82
85
82
76
53
53
56
54
37
28
29
29
28
39
71
77
63
56
57
58
61
47
49
43
13
16
16
7
14
Nov.
5....
12....
19....
26....
1,049
1.131
1,717
1,675
360
333
343
383
689
798
1,374
1,292
517
533
1,157
1,015
589
682
965
790
160
113
96
196
429
569
869
594
281
265
500
452
54
68
95
51
227
197
405
401
59
65
125
294
68
69
74
45
-9
-4
51
239
72
70
70
84
36
36
34
35
36
34
36
49
48
49
57
55
42
47
44
46
6
2
13
9
Dec.
3 . . . . 1,642
1 0 . . . . 1,927
1 7 . . . . 2,290
2 4 . . . . 2,494
31. . . . 2,697
476
405
315
316
400
1,166
1,522
1,975
2,178
2,297
838
1,332
1,846
2,061
2,213
856
1,156
1,482
1,685
1,878
268
186
1U
108
111
588
970
1,371
1,577
1,767
386
369
379
400
388
57
57
24
24
17
329
312
355
376
371
261
252
265
250
271
65
75
73
66
141
196
177
192
184
130
80
89
91
86
88
35
35
46
50
56
45
54
45
36
32
59
61
73
73
72
51
52
61
68
75
8
9
12
5
-3
1
This column excludes securities committed to be sold under resale agreements.
NOTE.—Data include commitments to repurchase.
VO
Data on this basis are not available by maturity class.
s
TABLE C-2,
U . S . GOVERNMENT SECURITIES DEALERS
VOLUME OF TRADING IN U . S . GOVERNMENT SECURITIES, BY TYPE OF SECURITY
[In millions of dollars]
Week ended
Certs., notes & bonds
due within one year
Bills
Total
Daily
average
Daily
average
Notes & bonds due in
one to five years
Daily
average
Bonds due
over five years
Daily
average
Total
Daily
average
Total
Nov. 6
13
20
27
5,871
5,102
6,833
7,821
1,468
1,275
1,367
1,564
3,704
3,043
3,771
3,588
926
761
754
717
1,096
949
1,428
1,883
274
237
286
377
676
780
1,108
1,481
169
195
222
296
395
330
526
869
99
82
105
174
Dec.
5,543
6,040
5,950
4,527
6,740
1,386
1,208
1,190
1,132
1,685
2,886
3,033
3,226
2,645
4,455
721
606
645
661
1,114
1,130
1,175
953
620
828
283
235
191
155
207
1,037
1,279
1,140
911
1,005
259
256
228
228
251
490
553
631
351
452
123
111
126
88
113
Totat
Total
Total
1957
4
11
18
24
31
1958
Jan.
8
15
22
29
6,093
7,313
5,669
6,346
1,219
1,462
1,134
1,269
4,124
3,941
3,386
3,129
825
788
677
626
803
1,491
1,335
1,997
161
298
267
399
616
1,401
641
944
123
280
128
189
550
480
307
276
110
96
62
55
Feb.
5
11
19
26
11,696
5,736
6,750
7,511
2,339
1,434
1,350
1,502
3,891
2,756
3,497
4,149
778
689
699
830
4,552
1,137
1,185
1,291
910
284
237
258
1,431
938
1,146
1,297
286
235
229
259
1,822
905
922
774
364
226
184
155
Mar. 5
12
19
26
6,939
6,619
6,031
6,186
1,388
1,324
1,206
1,237
3,713
3,695
3,224
2,996
742
739
645
599
1,133
1,330
1,209
1,139
227
266
242
228
1,030
902
872
1,133
206
180
174
227
1,063
692
726
918
213
138
145
184
Arr.
7,952
6,279
8,748
8,247
7,045
1,590
1,570
1,750
1,649
1,409
4,414
3,171
3,548
3,316
3,056
883
793
710
663
1,612
1,044
1,238
1,518
322
261
248
303
200
1,094
1,444
2,974
2,369
2,136
219
361
595
474
427
832
620
988
1,044
853
165
155
198
209
171
2
9
16.
23
30
611
1,000
May
7
14....
21
28. . ,.
6,173
6,918
8,030
8,313
1,235
1,384
1,606
1,663
3,161
3,236
3,916
3,551
632
647
783
711
1,095
1,560
1,805
2,198
219
312
361
440
1,264
1,451
1,743
1,929
253
290
349
386
653
671
566
635
131
134
113
127
11
18
25, , , .
8 317
9,825
7,143
7,619
2 079
1,965
1,429
1,524
2 444
3,436
3,453
3,553
611
687
691
711
2,858
2,413
1,184
1,143
715
483
237
229
1,650
1,602
1,108
1,190
413
320
222
238
1,365
2,374
1,398
1,733
341
475
280
347
2....
9
16
23
30
6,990
4,987
5,866
10,674
5,603
1,398
1,247
1,173
2,135
1,121
3,680
2,960
3,443
3,129
3,113
736
740
689
626
623
970
526
948
4,796
843
194
132
190
959
169
1,059
562
693
1,417
724
212
141
139
283
145
1,281
939
782
1,332
923
256
235
156
266
185
Aug. 6. , . .
13
20
27
7,459
5,737
4,852
4,692
1,492
1,147
970
938
4,153
3,302
3,128
3,234
831
660
626
647
1,663
813
848
729
333
163
170
146
715
596
380
368
143
119
76
74
928
1,024
496
361
Sept. 3
10
17
24, ,
4,348
5,181
5,940
5,106
1,087
1.036
1,188
1,021
2,974
3,325
3,910
3,523
744
665
782
705
611
960
986
726
153
192
197
145
459
552
654
524
115
110
131
105
304
344
390
333
Oct.
5,946
6,915
5,874
5,175
5,553
1,189
1,383
1,469
1,035
1,111
4,074
4.983
4,508
3,845
4,041
815
997
1,127
769
808
962
834
604
651
848
192
167
151
130
170
595
740
412
420
380
119
148
103
84
76
Nov. 5
12, . ,
19
26 ,
4.581
4,516
6,849
7,671
1,145
1,129
t .370
t , 534
3,488
3,348
5,124
4.757
872
837
1.025
951
5%
753
970
1,865
295
225
477
695
74
56
95
139
202
190
278
354
Dec.
5,313
6.272
6,218
7,141
7,706
1.328
1.254
1.244
1,428
1,927
3,946
4.819
4,644
5.125
5,664
987
964
929
1.025
1.416
759
702
652
864
1,039
393
461
596
637
672
98
92
t 19
127
168
215
290
326
515
331
July
1 ,
8
15, . . .
22, . .,
29
3, ,
10 , ,
17 ,
24
,
31....
!
!
j
!!
Norr.—Data include combined grow purchases and sabs by deal *ri.
actions under repurchase agreements arc excluded.
!
|
ji
!
|
:
j
j
t49
188
194
373
190
140
130
173
260
!
j
j
1!
!
i
'
!
I
j
1
|
|
|
i
315
358
350
259
284
1
|!
|
186
205
99
72
'
!
1
ii
76
69
78
67
|
!
63
72
88
52
57
|
;
Allotments and awards of nj* Treasury ksuss to d n b r i are inctudsd as deabr purchases.
51
48
56
7t
54
58
65
103
83
Trans-
TABLE C - 3 , U . S . GOVERNMENT SECURTTIES DEALERS
4*>
N>
LOANS AND REPURCHASE AGREEMENTS OUTSTANDING, BV TYPE OF LENDER
fin millions of dollars]
Total
New
York
City
Elsewhere
1t5l8
313
313
Commercial banks
Commercial banks
Commercial banks
Dale
Repurchase agreements
Loans
Loans and repurchase agreements
N<-nfinan.
bus.
corps.
All
others
Total
New
York
City
Elsewhere
680
212
528
315
Nonfinan.
bus.
corps.
All
others
All
others
Total
New
York
City
Elsewhere
104
109
990
-2
209
680
103
112
714
813
929
944
195
93
51
178
1957
Oct. 3 0 . . .
Nov.
Dec.
6...
13...
20...
27...
1,574
1,474
1,874
1,945
247
117
370
338
298
356
418
292
714
813
929
944
315
157
371
465
365
651
664
233
141
410
307
129
135
164
120
95
106
193
1,109
1,109
1,223
1,281
14
-24
-40
31
186
227
283
128
4...
2,205
2,313
2,549
2,499
2,707
416
594
734
666
801
465
492
647
627
680
1,013
863
819
776
654
311
364
349
430
572
748
991
1,114
1,116
1,243
341
537
654
613
670
244
244
254
272
337
163
210
206
231
236
1,457
1,322
1,435
1,383
1,464
75
57
70
53
131
221
248
403
355
343
1,013
863
819
776
654
148
154
143
199
336
8...
15...
22...
29...
2,609
2,336
2,170
1,828
627
418
369
255
713
729
608
492
965
891
991
938
304
298
202
143
952
685
555
567
328
322
239
235
237
203
257
150
120
97
59
1,657
1,651
1,548
1,273
61
90
47
16
477
492
405
235
965
891
991
938
154
178
105
84
5...
2,349
2,520
2,133
2,078
716
667
421
345
464
562
444
571
951
993
1,128
1,042
218
298
140
120
1,137
1,140
808
719
688
635
384
311
336
354
330
317
113
151
94
91
1,212
1,380
1,325
1,359
28
32
37
34
128
208
114
254
951
993
1,128
1,042
105
147
46
29
2,552
2,569
2,770
2,297
610
678
619
439
655
621
991
763
1,108
1,033
1,015
940
179
237
145
155
1,121
1,096
1,093
836
589
629
544
389
393
306
439
338
139
161
110
109
1,431
1,473
1,677
1,461
21
49
75
50
262
315
552
425
1,108
1.033
1,015
940
40
76
35
46
II...
18...
24...
31...
188
1958
Jan.
Feb.
II...
19...
26...
Mar.
5...
12...
19...
26...
622
Apr.
2
9
16
23
30
1,864
2,399
3,137
3,067
2,763
398
634
1,056
1,016
912
420
610
845
677
751
941
1,045
1,026
1,209
990
105
110
210
165
110
585
885
t ,447
1,372
1,250
358
611
1,049
1,003
889
170
210
278
290
328
57
64
120
79
33
1,279
1,514
1,690
1,695
1,513
40
23
7
13
23
250
400
567
387
423
941
1,045
1,026
1,209
990
48
46
90
86
77
May
7
14
21
28
2,403
2,447
2,261
2,326
539
532
438
529
632
535
303
394
1,128
1,246
1,400
1,262
104
134
120
141
775
777
641
805
518
525
425
514
218
178
165
225
39
74
51
66
1,628
1,670
1,620
1,522
21
7
13
15
414
357
138
169
1,246
1,400
1,262
1,128
65
60
69
75
June 4
11
18
2,841
3,201
3,314
2,759
816
1,071
1,321
871
446
526
868
799
1,426
1,385
925
939
153
219
200
150
1,127
1,472
1,820
1,270
810
1,056
1,263
846
238
309
471
376
79
107
86
48
1,714
1,729
1,494
1,489
6
15
58
25
208
217
397
423
1,426
1,385
925
939
74
112
114
102
2
9
16
23
30
2,260
2,270
2,209
2,218
1,939
635
410
424
423
350
670
671
592
473
447
887
1,071
1,089
1,219
1,062
68
118
104
103
90
925
745
716
671
549
602
395
406
409
327
287
294
250
225
199
36
56
60
37
23
1,335
1,525
1,493
1,547
1,400
33
16
18
14
23
383
376
342
248
248
887
1,071
1,089
1,219
1,062
32
62
44
66
67
13
20
27
1,762
1,681
1,487
1,223
361
257
150
59
325
316
250
151
1,010
1,040
1,033
982
66
68
54
31
531
454
316
201
346
248
142
49
142
162
148
129
43
44
26
23
1,231
1,227
1,171
1,022
16
9
8
10
182
154
102
22
1,010
1,040
1,033
982
23
24
28
928
716
608
540
30
36
22
28
241
421
217
228
68
254
56
85
147
138
142
124
26
29
19
19
913
746
513
352
0
2
0
0
-19
21
-98
-197
928
716
608
540
4
7
3
9
July
8
Sept.. 3
10
17
24
1,154
1,167
730
580
68
256
56
85
128
159
44
-73
1
8
15
22
29
644
870
1,004
838
659
99
29
124
50
38
36
120
181
109
25
479
657
607
646
555
30
64
92
33
41
248
240
320
231
246
97
76
147
92
86
133
138
154
124
137
18
26
19
15
23
396
630
684
607
413
2
-47
-23
-42
-48
-97
-18
27
-15
-112
479
657
607
646
555
12
38
73
. 5
12
19
26
753
526
737
1,188
101
58
35
275
75
-49
9
57
479
479
612
711
98
38
81
145
270
248
236
535
108
108
89
310
129
119
123
181
33
21
24
44
483
278
501
653
-7
-50
-54
-35
-54
-168
-114
-124
479
479
612
711
65
17
57
101
3
10
17
24
31
961
1,127
1,463
1,814
1,788
106
212
339
403
451
29
98
277
286
360
802
786
769
993
912
24
31
78
132
65
339
418
630
708
689
159
223
334
380
392
164
171
246
267
274
16
24
50
61
23
622
709
833
1,106
1,099
-53
-It
5
23
59
-135
-73
31
19
86
802
786
769
993
912
7
28
71
42
Dec.
NtrrE.—Loans Include dealer banks' use of bank funds—New York City and elsewhere.
18
18
Repurchase agreements are adjusted to allow for offsetting resale agreements.
TABLE C - 4 , U . S . GOVERNMENT SECURITIES DEALERS
FORWARD DELIVERY SALES OF U . S . GOVERNMENT SECURITIES, BY TYPE OF SECURITY
[In millions of dollars]
Total
June
"rights"
609
205
April 2i
9
16
23
30
5
3
30
68
31
0
0
18
36
4
May
46
19
30
61
33
13
26
60
Week ended
(1958)
Total
June
July
7
14
21
28
4
11
18
25
....
2
9
16
23
30
31
4
13
13
7
44
8
54
142
15
—
—
—
25/8% bonds 3%% bonds
of 1990
of 1965
23
—
—
—
-
359
1
3
(2)
1
1
—
0
(2)
—
0
—
(2)
—
11
1
8
3
0
—
22
(2)
—
(2)
(2)
—
All
other
(2)
(2)
(2)
12
31
26>
13
6
4
1
1
2
4
5
2
3
6
1
1
0
7
0
6
43
8
47
142
1
Not a full week.
2 Less than $500,000.
NOTE.—Includes transactions for delivery one week or more subsequent to commitment date.
transactions under repurchase agreements.
144
4
Excludes
TABLE C - 5 , U . S . GOVERNMENT SECURITIES DEALERS
POSITIONS IN JUNE "RIGHTS" AND
PER CENT BONDS
[In millions of dollars]
June "rights"
2%% bonds
Date
(1958)
Long
Short
300
336
371
370
353
420
426
16
21
26
33
33
22
24
495
546
671
771
11
(»)
4
0
—
—
—
—
—
—
—
—
—
—
—
—
—.
—
—
Long
Short
—
—
—
—
—
—
—
—
—
—
—
—
0
12
47
96
479
432
396
355
340
17
49
156
231
0
0
0
0
0
—
315
342
339
304
253
236
241
199
189
208
0
0
0
0
0
0
0
2
5
2
—
207
194
3
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—„
_
July
1
2
3
7
8
9
10
11
14
15
June "rights"
2H% bonds
Long
Long
—
—
—
—
—
—
1
3
2
I
4
11
11
9
6
4
—
—
—
—.
—.
—
—
—
—
—
—
118
113
112
110
105
96
90
90
90
90
87
0
4
11
7
12
7
5
3
1
3
4
—
—
—
18.
—
—
—
—
—
—
—
—
—
—
~
Short
204
149
150
153
141
132
126
171
123
121
—
—
—
—
—
; —
16
29
Short
i Less than $500,000.
145
TABLE C - 6 , U . S . GOVERNMENT SECURITIES DEALERS
ON
TRANSACTIONS IN JUNE "RIGHTS" AND 2% PER CENT BONDS, BY TYPE OF CUSTOMER
[In millions of dollars]
Dealers' purchases (P) from or sales (S) to:
Date
(1958)
Commercial
banks
Alt
customers
Net
Net
May 21,
22,
23.
26,
27,
28,
29.
June 2.
3.
4.
5.
6.
9.
10.
M.
12.
13.
16.
17.
18.
19.
20.
23.
24.
25.
26.
27.
30.
37
22
15
26
34
25
n
+ 19
(»>
-15
252
311
450
472
231
23
61
44
28
49
202 + 5 0
287 + 2 4
409 +41
307 + 165
266 - 3 5
44 - 2 1
103 - 4 2
79 - 3 5
-13
41
69 - 2 0
58
80
151
150
74
31
64
48
23
47
+51
+54
-24
+9
+25
-19
-45
-41
-15
-35
75
89
58
143
42
32
57
88
30
38
24
89
88
83
198
66
25
89
109
19
40
34
-14
55
57
59
77
33
17
38
23
7
15
6
-40
-42
-43
-66
-31
+1
-25
-55
-24
+7
-32
-21
+ 11
-2
-10
Net
+ 10
-11
-35
-20
-1
- 6
+6
Other
N. Y.
Stock Exchange dealers and
brokers
firms
Net
-19
-19
-26
+38
+24
+25
-30
+71
+ 15
70 96
123 85
117 93
122 97
85 115
156 85
73 58
Govt. sec.
dealers
-26
—9
+ 17
-10
+8
-29
-25
-15
-21
Net
Net
- 2
-4
-4
-8
-3
- 8
-1
-28
+1
+ 10
-71
-52
-107
+1
41
47
55
39
30
79
48
+27
+40
+44
+39
+ 19
+79
+48
18
+ 17
+33
+ 165
+98
+ 15
+?
+4
+1
0)
+9
+ 12
+2
-5
+5
+8
-1
+1
39
167
117
24
2
5
1
(')
9
-3
-5
+5
+37
+ 18
+53
+7
+4
+2
+1
+46
+7
+1
+3
+3
+2
+3
+1
28
1
2
10
1
0)
14
36
1
4
0
- 6
+9
+31
-18
0)
+5
+2
-4
-1
+1
+3
-5
+6
+4
0)
- 6
-55
-5
-5
+ 18
+ 11
+14
+3
+5
+9
- 8
-14
-13
-42
-2
+1
0)
0)
Savings
type
investors
Nonfinan. bus.
corps.
+ 2
+ T
+1
+9
+1
(«)
+ 13
+35
#
Net
-5
+29
+2
+2
-5
-1
-2
+60
+ 10
+6
Others
Individuals
0
!:>
h
0
-1
- 2
+6
+21
-10
-7
+4
- 2
ti
+2
0)
-16
- 2
-I
-1
0)
0)
-I
0)
-1
-4
—4
(l>
-1
+4
+5
+6
+3
0)
Net
Net
+6
- 2
+3
+1
0)
+2
+1
(0
+1
9
13
0
1
5
1
1
18
21
6
1
4
1
0)
0(»))
-12
+1
-16
-13
+16
+32
+34
+
+ 1»
+5
-10
3
95
5
4
29
54
6
17
27
+2
-92
-4
- 2
-28
-53
- 6
-16
-26
TABLE
C-6—Continued
Dealers' purchases (P) from or sales (S) to:
Date
(1958)
All
customers
P
July
1
2
3
7
8
9
10
11
14
15
16
17
18
21
22
23
24
25
28
29
30
S
Commercial
banks
Net
P
S
Net
Govt. sec.
dealers
P
S
Net
7
• 20
104 163
37 35
80 66
27 39
88 104
12 16
23 17
14 18
32 27
+ 13
-59
+2
+ 14
-12
-16
-4
+6
-4
+5
6
17
11
7
4
2
2
8
3
6
3 1 +2
2 +4
3 + 14 23 2 + 2 1
-6
7 4
+3
17
6 + 1 12 0 + 12
-8
10
-6
3 11
20 - 1 8 17 7 + 10
-8
5 6
10
—1
1 +7
5 6
8 2 +6
14 - 1 1
-4
7 8
10
22
33
54
40
29
29
17
12
2
30
32
-4
-3
-4
+1
-10
-4
-2
-1
+4
l
-4
3
5
8
26
6
4
8
2
<•)
11
11
-3
9 3
6
9 11
14 - 9
24 - 1 6 12 12
8 12
18 + 8
18 + 12 6 7
- 7 11 7
11
5 4
6 +2
6 5
-1
3
l
3 1
6 7
14 - 5
6 9
13 - 2
18
30
50
41
19
25
15
11
6
30
28
()
<)
N. Y.
Other
Stock Exchange dealers and
firms
brokers
P
S
6
37
9
59
14
19
3
3
2
12
!
0
0)
i
i
2
(')
(«)
1
2
4
+6
5
-2
0 14
- 4
3
2
-I
1
+4
]
+1
+1 2
2
+2
8
-3
8
Net
1
1
2
2
1
I
0
(')
(»)
3
3
P
S
Net
Nonfinan. bus.
corps.
S
P
Net
Savings
type
•
investors
P
S
Net
5 0 +5
+5
+ 3 7 18 (*> + 18
5 (0
+9
+5
2 (*> + 2
+58
3 1 +2
+13
+ 1 7 46 5 + 4 1
2 <0 + 2
+3
1 2
+3
i (0
+ 1
+1
5 4 +1
+10
0 0)
2 0
2 i
0 0
2 1
0 0
0) 0
1 0
l
2 0
(0 0) (0
0 0)
+2
+1 2 I
0 0
1
+1 0
0 3 2
(») 0 (*>
5 1
+1
0
1
+ 2 C1) (»)
I (»)
+3
+1
3 1 +2
+4
+ 12 12 1 + 11
1
3 -2
+1
+ t 3 1 +2
1
4
+3
0)
+ 1 (>> 1
+ 2 (»> 0
1 1
+2
3 2 +1
+5
2 3
+5
0) (')
l
0
2 1
0) 0
0) 0
+1 0)
h
()
(>
(«>
2
3
0
0
0
0
0
c>
0
0
0
0
0
2
0
(!)
VI
0
+2
+3
0 0
0 1
0 0
-2
0
0 0)
I
(
7
4
1
1
0)
0
0
2
3
Individuals
P
S
<»> ( ' ) 0
(') 3 0
+ 1 <•> 1
l
0 0
1 0
-1
+ 1 0 0)
0) 0 0
0 0
+4
- 1 (') 0
(') 0
(>
_t
l
-1
-4
-1
-1
1 1
7 0
2 1
3 0
(') 0
2 0
1 0
0 3
+1
0 (') 0
-2
I <n
1 0
-3
(>
Net
+3
-1
0
+1
{»>
0
0
(')
(')
(')
+7
+1
+3
+2
+1
-3
0)
+1
+1
Others
P
S
Net
3
-3
0)
4 158 - 1 5 4
-10
1 11
0 59
-59
14 - 1 4
0
-67
1 68
l
0
0)
-7
7
0
0
0
0
3
-3
(')
(>
0
1
0
(»>
(»)
0
0
0
0
1
0
10
6
12
1
1
8
6
1
0
(')
1
-10
-5
-12
—1
-1
-8
-6
-1
0
+1
- I
i Less than $500,000.
Nom—'"Net" columns show effect on dealers* position: ( + ) net increase or ( - ) net decrease. This is the reverse of the ownership changes for the variotw customer
groupings. Effect on dealers' position of transactions with all customers combined does not correspond with day-to-day position changes shown in Table C-5 largely
because data shown above exclude transaction* under repurchase agreements. Figures on inter-dealer transactions are not offsetting because of transactions with dealers
not included in survey.
•P.
-J
INFORMATION SUPPLIED BY
YOU WILL NOT BE PUBLISHED
IN A MANNER THAT WILL
REVEAL THE INDIVIDUAL
OPERATIONS OF YOUR
ORGANIZATION.
Budget Bureau No. 55-5903
Treasury-Federal Reserve Questionnaire
to Government Security Dealers
Study of Government Securities Market
I. U. S. Government securities holdings.
1. Gross long and short position at the close of business each day from May 21 to July 30, 1958,
inclusive (include investment accounts and commitments to repurchase):*
a.
b.
c.
d.
e.
f.
g.
h.
i.
Treasury bills.
Certificates of indebtedness.
Notes and bonds maturing within one year.
Notes and bonds maturing within one-five years.
Bonds maturing within five-ten years.
Bonds maturing within ten-twenty years.
Bonds maturing over twenty years.
"Rights" to the Treasury June 1958 refunding and 2% per cent bonds of 1965 (included above).
Securities (included above) which represent commitments to purchase at a future date.
Note: If you have already supplied to the Federal Reserve Bank of New York the data asked
for in a through g above you need not submit figures but we ask your permission to use the data
covering a through g above in aggregative form for the purposes of this study.
2. Gross long and short position at the close of business each Wednesday from October 30, 1957
to December 31, 1958, inclusive (include investment accounts and commitments to repurchase):
' a.
b.
c.
d.
e.
f.
g.
Treasury bills.
Certificates of indebtedness.
Notes and bonds maturing within one year.
Notes and bonds maturing within one-five years.
Bonds maturing within five-ten years.
Bonds maturing within ten-twenty years.
Bonds maturing over twenty years.
Note: If you have already supplied to the Federal Reserve Bank of New York the data asked
for above you need not submit figures but we ask your permission to use the data in aggregative
form for the purposes of this study.
II. Borrowings (including repurchase agreements) against U. S. Government securities at the close
of business each Wednesday from October 30, 1957 to December 31, 1958.
1. Collateral loans.
a. With domestic commercial banks in New York City.
b. With domestic commercial banks elsewhere.
c. All other.
2. Repurchase agreements.
a.
b.
c.
d.
With
With
With
With
domestic commercial banks in New York City.
domestic commercial banks elsewhere.
nonfinancial corporations.
others.
III. Borrowings at the close of business each day from June 9 to June 23, 1958, inclusive, against "rights"
to June 1958 Treasury exchange and 2% per cent bonds through:
a.
b.
c.
d.
Collateral loans with commercial banks.
Repurchase agreements with commercial banks.
Repurchase agreements with nonfinancial corporations.
Repurchase agreements with others.
148
IV. Transactions.
1. Show gross purchases from and sales to (exclude transactions on repurchase agreements) the following types of customers each day for the dates May 21 to July 30, 1958, inclusive, in the "rights"
to the Treasury's June 1958 exchange and in the 2H P«r cent bonds of 1965.
a.
b.
c.
d.
e.
f.
Commercial banks (exclude dealer banks).
Government security dealers and brokers (include dealer banks).
New York Stock Exchange firms (exclude Government security dealers).
Other dealers and brokers.
Nonfinancial business corporations.
Savings type investors (as defined in Treasury Circular No. 1020 covering cash offering in
January 1959 on 4 per cent bonds of 1980).
g. Individuals.
h. Others.
V. Forward delivery contracts made on each day from April 1 to July 30, 1958, inclusive.
1. Show total sales of U. S. Government securities for delivery and settlement one week or more
subsequent to the contract date (exclude transactions in Treasury bills, repurchase agreements
and normal "when-issued" trading, i.e., for specified delivery and settlement on issue date) classified
by:
a.
b.
c.
d.
"Rights" to the Treasury's June 1958 exchange.
2% per cent bonds of 1965.
3Vi per cent bonds of 1990.
Other U. S. Government securities.
Note: Dealer banks answer questions related to borrowings in terms of bank funds used in
the dealer function.
149
Appendix D
New York Stock Exchange Member Firms
EXPLANATORY
NOTES
The survey included all 390 New York Stock Exchange member
firms and requested information as of each Wednesday for the
period April 2 through August 27, 1958. Somewhat more than
20 per cent of all the reporting firms participated in the market
to some extent. Details on number of firms reporting are as follows:
Number of
firms reporting
Gross long positions in U. S. Government securities for firm,
partnership, or stockholder account
Gross long positions in U. S. Government securities for customer accounts
Borrowing against U.S. Government securities
Collateral loans
Repurchase agreements
As principal
As agent
Arranged forward delivery contracts in U. S. Government
securities
Total number of firms reporting one or more of the above items
84
62
81
5
2
20
89
The information requested from New York Stock Exchange
member firms is indicated in Form 55-5911 (Parts I and II), which
is reproduced on pages 154-55. Data provided on gross long positions in United States Government securities, outstanding loans and
repurchase agreements against such securities, and forward delivery
purchase and sale contracts are shown in the tables that follow.
Each of the tables excludes two member firms that are included
among Government securities dealers.
150
TABLE D - L , N . Y . STOCK EXCHANGE FIRMS
GROSS LONG POSITIONS IN U . S . GOVERNMENT SECURITIES FOR FIRM AND CUSTOMER ACCOUNT
[In millions of dollars]
All marketable securities
Date
(1958)
2
23
May
7
2!
28
June
18
July
2
9...
23
Aug.
Firm
account
Individuals
2 H % Bonds
Customer accounts
Customer accounts
Total
Apr.
June "rights'*
Total
Nonfinan.
corps.
All
other
Firm
account
Individuals
Customer accounts
Nonfinan.
corps.
All
other
Total
Firm
account
Individuals
Nonfinan.
corps.
All
other
487
559
541
695
601
281
271
280
373
353
142
195
160
206
136
27
37
64
72
77
37
56
37
44
35
105
124
151
211
224
91
101
128
181
198
3
6
7
11
8
9
14
15
16
15
2
3
1
3
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
620
752
760
956
383
438
477
573
131
184
177
249
70
79
71
84
36
51
35
50
252
275
376
465
228
243
312
373
7
12
45
68
15
16
17
18
2
4
2
6
—
—
—
—
.—
—
—
—
—
—
—
—
1,021
1,219
1,156
1,126
705
795
739
680
212
263
274
284
63
102
106
115
41
59
36
48
584
695
5
498
560
3
69
85
1
11
42
0
7
8
I
—
—
—
16
28
556
477
10
12
128
91
0)
53
—
32
46
742
608
844
789
549
595
493
519
416
246
256
220
204
242
201
225
179
86
83
69
69
54
34
48
33
45
40
465
356
230
212
198
345
248
140
138
130
79
75
67
63
57
36
28
21
8
8
5
5
448
532
413
511
208
228
184
195
156
201
146
195
50
53
47
68
34
50
36
53
181
195
158
179
120
130
98
110
53
55
49
49
6
7
6
15
2
3
5
4
—
—
—
—
—
—
—
—
_
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
_
__
(»>
37
—
6
6
6
2
3
3
* Less man wuu,uw.
^
. . .
NOTE.—Not all firms reported weekly. Four reported semi-monthly and two reported monthly data. One firm could not report ownership breakdown of long positions,
t o holdings of that firm and its customers are aggregated and included under firm account. The holdings for firm account include one firm's commitments to purchase
which were offset for the most part by forward delivery sales contracts (not shown above).
to
TABLE D - 2 , N . Y . STOCK EXCHANGE FIRMS
LOANS AND REPURCHASE AGREEMENTS OUTSTANDING, BY TYPE OF LENDER
[In millions of dollars]
Commercial
banks
Date
(1958)
Total
New
York
City
Elsewhere
Repurchase agreements *
Loans
Loans and repurchase agreements *
Commercial
banks
Nonfinan.
bus.
corps.
All
others
Total
New
York
City
Elsewhere
Nonfinari.
bus.
corps.
18
18
Commercial
banks
All
others
Total
New
York
City
Elsewhere
Nonfinan.
bus.
corps.
2
9
16
23
30
294
307
379
426
414
104
112
164
161
139
99
103
115
139
153
15
15
21
33
36
76
77
79
93
86
240
245
216
102
105
150
145
117
23
23
29
64
65
67
77
70
109
119
140
181
199
2
7
14
16
23
81
85
93
116
124
15
15
21
33
36
May
7
14
21
28
420
454
515
59!
142
135
133
155
165
185
216
250
41
59
96
107
72
75
70
79
210
215
211
235
119
112
110
131
29
37
35
36
62
66
66
68
210
240
304
355
23
23
23
23
136
149
182
214
41
59
96
107
June
4
11
18
25,
744
875
930
786
200
320
389
311
247
250
203
152
116
117
134
110
188
204
213
181
306
424
525
466
188
307
388
311
44
35
46
47
74
82
91
108
438
451
404
321
13
13
0
0
203
215
157
105
116
117
134
110
29,
268
251
232
196
196
106
55
28
27
33
94
66
8
3
3
166
95
91
70
60
406
368
348
289
288
268
251
232
196
196
40
36
27
27
33
98
81
89
66
59
228
99
12
7
5
0
0
0
0
0
66
19
1
(2)
0
94
66
23.
30.
634
467
359
296
292
6.
13.
20.
27.
270
239
228
230
170
149
131
135
32
30
34
34
3
3
3
3
65
57
60
58
267
236
225
226
170
149
131
135
32
30
34
33
65
57
60
58
3
3
3
3
0
0
0
0
0
0
0
(2)
3
3
3
3
Apr.
July
16,
Aug.
i includes agreements in which the firm acted as principal.
184
188
2 Less than $500,000.
8
3
3
TABLE D - 3 , N . Y . STOCK EXCHANGE FIRMS
FORWARD DELIVERY PURCHASES AND SALES OF U . S. GOVERNMENT SECURITIES
BY TYPE OF SECURITY
[In millions of dollars]
Total
Week ended
(1958)
June "rights"
Bought
Sold
Bought
Sold
195
440
178
349
April 2i
9
16
23
30
18
1
5
28
5
19
25
23
66
23
18
1
5
28
2
16
23
16
49
12
May
7
14
21
28
17
3
29
71
14
37
47
60
17
3
29
68
11
21
47
57
4
11
18
25
9
1
8
0
93
29
0
0
6
1
76
21
2
9
16
23
30
0
0
0
(*)
0
0
2
1
0
1
Total
June
July
—
—
—
—
—
—
—
—
;—
—
—
2 H % bonds
of 1965
Bought
3
3V4% bonds
of 1990
All other
Sold
Bought
Sold
Bought
Sold
6
<*>
23
14
62
2
1
0
(2)
0
0
3
1
1
7
16
10
(2)
3
0
0
0
3
2
14
0
0
0
0
0
0
12
0
0
0
0
0
8
0
5
6
0
0
0
0
0
2
(>
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
—
—
0
0
0
0
0
—
—
—
—.
(20>
—
—
0
—
,„
3
0
0
0
2
0
0
0
0
0
0
0
0
2
1
0
*
0
o
I
1
1
2
1
Not a full week; one firm began its report on March 31, the others on April 1.
2 Less than S500.000.
NOTE.—Includes transactions of $100,000 or more for delivery one week or more subsequent to commitment date. Excludes transactions under repurchase and resale agreements.
153
INFORMATION SUPPLIED BY
YOU WILL NOT BE PUBLISHED
IN A MANNER THAT WILL
REVEAL THE INDIVIDUAL
OPERATIONS OF YOUR
FIRM.
Treasury-Federal Reserve Questionnaire
to Member Organizations of the
New York Stock Exchange
Study of Government Securities Market
Budget Bureau No. 55-5911
PART I
TO BE ANSWERED BY ALL FIRMS
ALL QUESTIONS PERTAIN TO U. S. GOVERNMENT SECURITIES TRANSACTIONS
ONLY
EXCLUDE OBLIGATIONS OF U. S. AGENCIES A N D INSTRUMENTALITIES
At the close of business on ANY day between April 2-August 27, 1958.
(a) Did your firm have outstanding borrowings, including repurchase agreement, against U. S. Government securities in an amount totaling $1 million
or more (including amounts collateralized by partners*, stockholders* and
customers* securities)
•
(1) yes; •
(2) no
(b) Did your firm have outstanding resale agreements, (reverse repurchase
agreements) against U. S. Government securities totaling SI million or more.
•
(1) yes; •
(2) no
(c) Did your firm (for itself, its partners, stockholders and customers) carry
long positions in U. S. Government securities the sum of which totaled
$5 million or more
•
(1) yes; •
(2) no
2. During the period from April 1 through July 30, 1958, was there any purchase
or sale transaction in an amount totaling SI00,000 or more processed through
your firm (for firm account, its partners, stockholders or customers) in U. S.
Government securities that involved forward or delayed delivery contracts
(excluding commitments arising from repurchase or resale agreements, and
bona fide "when-issued" transactions, i.e., for specified delivery and settlement
on issue date)
•
(1) yes; •
(2) no
Firm Name
Authorized Signature
All firms please check, sign, and return the duplicate copy of Part I of this questionnaire promptly to the Department of Research and Statistics, New York Stock
Exchange, 11 Wall Street, New York 5, N. Y.
Firms answering "yes" to any question in Part I are requested to supply data as
indicated in Part II. To facilitate reporting on Part II, worksheet schedules will be
furnished to member firms by the New York Stock Exchange on the basis of their replies
to Part I.
Part II
EVERY FIRM WHICH ANSWERED "YES" TO ANY QUESTION
IN PART I IS REQUESTED TO SUPPLY ANSWERS TO THE
FOLLOWING ON SCHEDULES PROVIDED.
ALL QUESTIONS
PERTAIN TO U. S. GOVERNMENT SECURITIES TRANSACTIONS
ONLY.
EXCLUDE OBLIGATIONS OF U. S. AGENCIES A N D
INSTRUMENTALITIES.
A.
Borrowings (including repurchase agreements—buy-backs, turnabouts, overnights and similar
transactions by whatever name—) against U. S. Government securities at the close of business each
Wednesday from April 2 through August 27, 1958, inclusive, classified as to:
1. Collateral loans:
a. With domestic commercial banks in New York City.
b. With domestic commercial banks elsewhere.
c. With other member firms.
d. All other (including agencies of foreign banks).
154
2. Gross repurchase agreements (including buy-backs, turnabouts, overnights and similar transactions by whatever name), reporting transactions when you acted as agent separately from those
in which you acted as principal:
a. With domestic commercial banks in New York City.
b. With domestic commercial banks elsewhere.
c. With other member firms.
d. With nonfinancial business corporations.
e. With others (including agencies of foreign banks).
B.
Gross resale agreements (reverse repurchase agreements, sellbacks and similar transactions
by whatever name) against U. S. Government securities at the close of business each Wednesday from
April 2 through August 27, 1958, inclusive, reporting your transaction where you acted as agent separately
from those in which you acted as principal:
a. With domestic commercial banks in New York City.
b. With domestic commercial banks elsewhere.
c. With nonfinancial business corporations.
d. With others (including agencies of foreign banks).
C.
Gross long positions (including commitments to repurchase under repurchase agreements)
at the close of business each Wednesday from April 2 through August 27, 1958, inclusive, classified
separately by holdings for (1) firm account, and (2) account of partners or voting stockholders in the
following:
a. 2%% bond, 2%% note, and 2%% bond, all due June 15, 1958 (known as "rights").
b. 2%% bond due 1965.
c. 3Vi% bond due 1990.
d. Other U. S. Government securities (including Treasury bills).
D.
Gross long positions (including commitments to repurchase under repurchase agreements)
in customers' accounts at the close of business each Wednesday from April 2 through August 27, 1958,
inclusive, classified separately by accounts of (1) individuals, (2) nonfinancial corporations, and (3) all
others, in the following:
a. 2H% bond, 2%% note, and 2%% bond, all due June 15, 1958 (known as "rights").
b. 2H% bond due 1965.
c. 3Vi% bond due 1990.
d. Other U. S. Government securities (including Treasury bills),
E.
On each day from April 1 through July 30, 1958, inclusive, total purchases and sales separately
(for transactions of $100,000 or more) of U. S. Government securities for delivery and settlement one
week or more subsequent to the commitment date (exclude repurchase and resale agreements, and bona
fide "when-issued" trading, i.e., for specified delivery and settlement on issue date), classified by:
a. 2H% bond, 2%% note, and 2%% bond, all due June 15, 1958 (known as "righto").
b. 2%% bond due 1965.
c. 3Vi% bond due 1990.
d. Other U. S. Government securities (including Treasury bills).
155
Appendix E
Domestic Agencies of Foreign Banking Corporations
EXPLANATORY
NOTES
The survey of domestic agencies of foreign banking corporations
included all such agencies which in the spring of 1958 were registered with the New York State Banking Department. Since all
agents of foreign banks with offices located in the State are required by law to be registered with the Banking Department, and
since nearly all foreign banks represented by agencies in this country maintain offices in New York City, it is believed that the coverage of the survey is almost complete. Of a total of 28 agencies
registered, replies were received from 27.
Of these 27 reporting agents, 16 indicated that they had no
loans or repurchase agreements outstanding on May 21, 1958,
and extended none during the period May 22 to July 30. During
the period covered by the survey, 340 separate collateral loans,
totaling over $500 million, and 15 separate repurchase agreements, totaling $16 million, were made by the 11 agencies reporting loans or repurchase agreements.
The questionnaires sent to domestic agencies of foreign banking corporations (Forms 55-5906 and 55-5907) were identical to
those sent to commercial banks, shown on pages 124-25, and instructions for completing them were also the same. Information
reported on loans and repurchase agreements is summarized in
the tables that follow.
156
TABLE E - L , AGENCIES OF FOREIGN BANKS
VOLUME OF LOANS AND REPURCHASE AGREEMENTS ORIGINATED
BY TYPE OF BORROWER *
[In millions of dollars)
Period
(1958)
All
borrowers
Govt.
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Other
Loans and repurchase agreements
Total
528
Before Apr. 28..
Apr. 29-May 31
June 1-June 28.
June 29-July 26.
After July 2 6 . . .
24
112
241
140
II
153
227
99
16
33
25
55
67
6
12
44
124
43
4
3
33
48
14
1
7
3
I
5
0
1
7
14
II
0
218
93
15
33
11
44
116
43
4
3
33
42
13
1
6
3
1
5
0
1
7
14
H
0
(2)
i
Loans
Total
511
Before Apr. 28.
Apr. 29-May 31
June 1-June 28.
June 29-July 26
After July 2 6 . . .
21
112
228
139
11
152
<2>
25
55
67
6
Repurchase agreements
Total
16
Before Apr. 28.
Apr. 29-May 31
June 1-June 28.
June 29-July 26,
After July 2 6 . . .
2
0
13
1
0
(2)
(2)
0
0
0
0
9
6
1
0
1
0
8
0
0
0
0
5
I
0
|
0
0
0
0
0
0
0
0
0
1
Includes loans and repurchase agreements of $100,000 or more, against U. S. Government securiti«s,
made after Dec. 31, 1957 and outstanding May 21, 1958, or made between May 21 and July 30, 1958.
2 Less than $500,000.
157
TABLE E - L , AGENCIES OF FOREIGN BANKS
VOLUME OF LOANS AND REPURCHASE AGREEMENTS TERMINATED
B Y TYPE OF BORROWER 1
[In millions of dollars]
Period
(1958)
All
borrowers
Govt.
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Other
Loans and repurchase agreements
Total
528
153
227
99
16
33
May 22-May 31
June I-June 15
June 16-June 28
June 30-July 26
July 26-Aug. 303
After Sept. P
44
64
102
182
69
67
22
18
16
76
19
3
8
34
62
61
30
31
13
8
23
33
11
11
(2).
0
(2)
2
7
6
1
4
( )
10
2
16
2
Loans
Total
511
152
218
93
15
33
May 22-May 31
June 1-June 15
June 16-June 28
June 30-July 26
July 28-Aug. 30^
After Sept. P
44
64
90
180
67
66
22
18
15
76
19
3
7
34
56
60
29
31
14
8
18
32
11
10
(2)
0
(2)
2
6
6
1
4
(2)
10
2
16
Repurchase agreements
Total
16
(2)
9
6
1
0
May 22-May 31..
June 1-June IS
June 16-June 28..
June 30-July 2 6 . .
July 28-Aug. 303.
After Sept. P
1
0
12
2
1
1
0
0
2
0
0
0
1
0
6
2
2
0
0
0
5
2
0
1
0
0
0
0
1
0
0
0
0
0
0
0
()
()
()
1 See footnote 1 to Table E - l .
2 Less than $500,000.
* Includes no loans or repurchase agreements originated after July 30.
158
TABLE E - L , AGENCIES OF FOREIGN BANKS
N E W 2 % PER CENT BOND COLLATERAL FOR LOANS ORIGINALLY
MADE AGAINST "RIGHTS," JUNE 16, 1958T
[Par value, in millions of dollars]
Period of origination
(1958)
All
borrowers
Govt.
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Individuals
Total
47
0
38
7
0
Before Apr. 30
May 1-May 31
June 1-June 14
2
13
32
0
0
0
0
10
28
1
2
4
0
0
0
Other
1
2
(>
1
0
1 N o repurchase agreements were exchanged.
2 Less than $500,000.
TABLE E - 4 , AGENCIES OF FOREIGN BANKS
INITIAL MARGIN REQUIRED ON LOANS, BY TYPE OF BORROWER I
[In millions of dollars]
1
All
borrowers
Govt.
sec.
dealers
N. Y.
Stock
Exchange
firms
Other
brokers
and
dealers
Total
503
153
210
93
15
33
Less than 1V4
38
266
174
25
21
125
6
1
12
58
123
17
4
68
19
2
0
2
10
3
0
14
17
2
Initial margin
(points)
m~3y4
y
3^-5 4
5^4 or more
Individuals
Other
i Includes loans of $100,000 and over made after Dec. 31, 1957 and outstanding May 21,1958, or between
May 21 and July 30, 1958.
159
@FedFRASER