FEDERAL RESERVE BANK OF NEW YORK 175 The Money Market In August The money market was comfortable during the opening BANK RESERVES days of August, but a generally firm tone prevailed there- after. The slightly easier tone at the beginning of the month, Market factorsabsorbed $554 million of member bank which had carried over from the end of July, largely re- reserves, on balance, over the four weeks ended August flected an easing of reserve pressures at the major money 26. Reserve drains were concentrated in the first two center banks. Subsequently, however, these banks again weeks of the period when currency outside banks, Treas- came underpressure, as they expanded their loans to Gov- ernment securities dealers whose financing needs were late sharply enlarged in connection with the Treasury's CHANGES IN FACrORS TENDING TO INCREASE OR DECREASE July and early August financing operations. Member MEMBER BANK RESERYES. AUGUST 1964 bank from the Federal Reserve, after having In miLlion; ofdollars; (4-) dcnotcs increase. borrowings (—)dccreasc in caccss rescrvc3 averaged on the low side in the final weeks of July and the first week of August, were somewhat higher over the rest Daily aiaraes..—we; ended Net I of the month. Factw chan;e, Au;. Au;. I Au;. I Au;. Federal funds traded predominantly at 3½ per cent 5 12 19 26 during the month, while rates posted by the major New York City banks on new and renewal call loans to Gov- Oarutlng transection. Dr,aunry ooaUoni — III — 154 + 41 — 200 It4uorvo Soot — 16G Ill ernment securities dealers were generally in a 334 to 3/8 Futhuol ± + 4' -4- 113 Currency Lu elicujatlon 229 -3. 11 — 114 cent range. Offering rates for new time certificates Gold arid rurelgu aCoUUflt —5 — .4 — 13 per Other depe1L,.end other Fodinol of deposit issued by leading New York City banks were flosorco ocCounta (until + 25 4. 3 — I)I —4 — — little changed in August. After having edged lower around Total 2123 .4. 513 — 26!' — 311$ the end of July, the rates at which three- and six-month Direct .darol R..rv. credit tranaatIen, Ot.i iu.arkt op010Uon3 certificates of deposit traded in the secondary market Eurr1,an, ni anlert nar- (.nietlunr.f,L DeC'UItIeS +653 + 117 ..212 .4. 74 -I- (72 tended slightly higher early in August and fluctuated 1J&nkct 5fl44 4. 1 —1—2 at Stesiuthr,se rocr.)enta rowly thereafter. Treasury bill rates rose irregularly Gu,orn!mnt mcurltlim — 21' + 1414 — 51f5 1. 1!! — 25 ilnnkrr,, —25 — — Is the of the month in a somewhat cautious atmos- Member bunk truntflgu 4. 51 — 96 St beginning h11 .4. — Otter 1nau. llmuuolo. .nd advanen, 1_ S : + 1 1-. 1 phere. However, a more confident tone soon reappeared — 12111 sIr 1313 Total .4..677 + 4117 I 4- when good demand materialized at the slightlyhigher yield Member bank reserves fluctuated most of the last — 44 levels. Rates narrowly during With Federal itnoorno Bunko 4. 3q + 1411 — 1611 + 211! altoued an rmwern,4 — 153 — fin UT —3 two thirds of the month, tending downward toward the Cant, + + " Total recervI .s- 233 •1- 1414 — IC + 35 close. ElToot of clionve In requIted rourrssI — 222 + - 49 4. III — IH:i in of Government notes After advancing July, prices (atoll relarpeel — IT ± 125 — 1'!. .4. 1141 + 1431 and bonds continued to rise in early August. Subsequently prices moved in a narrow range, despite international po- Dali; oycraae level of nemb?bae1 florrowthofrom RneT,o Hank 246 37ff 27$ 3 21111 litical tensions. Toward the close of the month, most prices Rsoo, rezrI '31 474 29! 4TT 4314 l'reo remroeo 61 IO) 113 146 11211 drifted lower, reflecting domestic economic buoyancy and of renewed concern regarding the United States balance Nob: Hcca,,oc,of roundIng.fl.guzn, ,lo no.4 n.ior1lyn'll to blab. in bond of cor- Incluideu change, Lu Treasury ClIFrl'fl17 and caab payments. Elsewhere the market, prices t Ijiclullee at,ctg ,jonOmtnateelIn foreign curranetge. issues and bonds were little 5 May LInt Inelude rm1rmptlun.,. porate tax-exempt changed S ThreeSguree ITO 0011 rusted. over the month. II A,eraffo toy four coethi ended Augug 241. 1964. 176 MONTHLY REVIEW,SEPTEMBER 1964 my deposits with the Federal Reserve Banks, and required From August 5 through August 12, a somewhat more reserves all expanded. In contrast, duringthe week ended hesitant atmosphere briefly emerged in the market, partly August 19 market factors provided a substantial volume in response to developments in Southeast Asia and in the of reserves primarily as a result of the sharp midmonth rise Mediterranean area. The cautious tone also reflected re- in float coupled with a reflux of currency to the banking newed uncertainty over the balance-of-payments outlook system. In the final statement period of the month, market and future domestic price stability. Slightly expanded factors again absorbed reserves as float contracted. offerings encountered only modest investment demand, Moving counter to fluctuations in market factors, Sys- and prices of notes and bonds receded. Selling pressure tem open market operations provided reserves in early remained very moderate, however, and price losses were August, withdrew reserves over the midmonth period, and small. Declines centered in the 2½ per cent wartime issues supplied reserves in the final week of the period. Over the —which were in supply on swaps into higher coupon issues four-week period as a whole, the weekly average of System —and in selected long-term bonds. With the immediate outright holdings of Government securities rose by $572 concern over the international situation subsiding toward million, while average holdings of Government securities midmonth, an improved tone emerged in the market. under repurchase agreements declined by $39 million. Offeringscontracted and a fairly good investment demand Average total Systemholdings of bankers' acceptances de- developed for high coupon issues, particularly for the 4½ creased by $20 million. From Wednesday,July 29, through per cent bonds of 1973, which were in demand both out- Wednesday, August 26, System holdings of Government right and on switchingtransactions. Moderate interest in the securities maturing in less than one year rose by 52,025 new 3/8 per cent notes of 1966 was also evidenl Accord- million, while holdings maturing in more than one year ingly, from August 13 through August 21, prices of notes contracted by $1,758 million,largely reflectingan exchange and bonds edged irregularly higher in light trading. There- of holdings of the maturing August 15 issues and maturity after, a more hesitant tone crept into the marketas invest- shifts within the portfolio. ment demand receded as often happens in August. Contrib- uting to the change in atmosphere were further signs of THE SOVERNMENT SECURITIES MARKET continuing strength in the domestic economy and some concern about balance-of-payments developments. In the market for Government notes and bonds, prices In the Treasury bill market, rates moved irregularly edged higher during the opening days of the month in a upward through August 11. A hesitant market undertone carry-over of earlier investment demand favoring the during this period largely reflected expectations that in- active 2½ per cent wartime issues, the new 4½ per cent vestor interest in bills would contract substantially in bonds of 1973, and the recently reopened 4¼ per cent August following the heavy reinvestment demand for bills bonds of 1987-92. During this period, the atmosphere generated by the Treasury's July refunding. With market continued favorable for the August refinancing in which supplies enlarged as a result of the Treasury's late-July bill the Treasury sold for cash new 37/s per cent eighteen- auctions, professional sources were willing sellers of bills month notes to replace securities maturing on August 15.' at slightly higher rates. At these yield levels, however, a The terms of the financing, announced late in July, good demand appeared, particularly from public funds, were in line with market expectations and had little ef- and over the midmonth period bill rates first steadied and fect on prices of outstanding obligations. Following then receded. In the latter part of August, investment de- the close of subscription books on August 3, the Treasury mand moved progressively from shorter maturities, in which announced that subscriptions had totaled $14.9 billion, of some scarcities developed, out beyond the three-month which approximately $4 billion was accepted. Subscrip- area. Longer bills attracted little interest and tended to edge tions from states, political subdivisions, public funds, the higher in rate, partly because of strong corporate interest in Federal Reserve, andother official accounts aggregated$1.9 the auction on August 26 of $1 billion of tax anticipation billion and were allotted in full. Subscriptions from other bills dated September 2 and maturing on March 22, 1965. sources were allotted in full up to $100,000, while larger On August 31, the Treasury announced that it would add subscriptions were subject to a 15 per cent allotment but an additional $100 million to the 91-day bill issues offered assured of a minimum award of $100,000. in the next four weekly auctions and rates backed up slightly after the announcement. Over the month as a whole, rates on most outstanding short-term bills were 2 basis points IThe details of theoffering were discussed in last month'sReview, lower to 10 basis points higher, while longer bills were p. 149. generally 7 basis points lower to 11 basis points higher. FEDERAL RESERVE BANK OF NEW YORK 177 Bidding was cautious in the August 25 auction of $1 quently, however, demand for tax-exempt bonds expanded and billion of new one-year bills, which resulted in an average moderately in response to slight price concessions, issuing rate of 3.688 per cent, compared with an average dealers were able to make some progress in reducing their issuing rate of 3.644 per cent on the comparable issue sold inventories.