FEDERAL RESERVE RANK OF NEW YORK IoU

The Money and Bond MarketsIn July

The money market was generally firm throughout July, half of the month, however, it was as common for Federal though the degree of firmness was somewhat greater funds to trade at 4 per cent or below as at 4¼ per cent (see in the first half of the month than in the second. Federal left-hand panel of the chart on page 163). Rates quoted by funds traded predominantly at 4½ per cent, with small major banks on new call loans to Govern- amounts trading as high as 4¼ per cent in the early part of ment securities dealers were predominantly in a 4Y to 4 the period. At the same time, member bank borrowings per cent range through the middle of July, while rates on from the Reserve Banks ranged around $600million. Later, renewal call loans were quoted most frequently in the 43/h Federal funds traded as often at 4 per cent as at 4¼ per to 4½ per cent range—in both cases about ¼ of a per- cent, and member bank borrowings receded. Treasury bill centage point higher than the range of such rates quoted rates rose until around midmonth, as the high cost of in other recent months. After midmonth, rates dropped financing inventories led to increased profcssional offerings hack to a predominant range of 4'/a to 4½ per cent on new of bills. Thereafter, bill rates declined in response to loans and of 4¼ to 4fl per cent on renewals. Offering rates a good investment demand and an increased willingness for new time certificates of deposit issued by leading New of dealers to hold inventories with the approach of the York City banks were essentially unchanged over the Treasury's August rctInancing. month. On , the major finance companies lowered Prices of Treasury notes and bonds fluctuated in a nar- their offering rates of 30- to 89-day directly placed paper row range during the month. Activity was light, and by of a percentage point to 4¼ per cent. 'their offering the atmosphere was cautious. Investment interest was rates on 90- to 270-day paper, however, were maintained at dampened by a sizable flow of corporate offerings and by 4¼ per cent. Rates on hankers' acceptances were reduced the proximity of the Treasury's refinancing of August ma- by l/ of a percentage point late in the month, as dealer in- tunes, announced after the close of businesson Wednesday, ventories of acceptances dropped to relatively low levels. . The new rates on 90-day prime acceptances were set at In the corporate bond market, prices wcre initially firm 4V4 percent hid-4¼ percent offered. in the wake of the successful distribution of a very large At the beginning of the month, banks in the central volume of new issues in June. Subsequently, the sizable money market were under substantial reserve pressure. In flow of new corporate bonds offered in July encountered part, this pressure reflected heavy demands for loans by mixed receptions, and reoffering yields on issues marketed Government securities dealers whose inventories were late in the month were slightlyabove June levels. In the tax- swollen 'by allotments of the June one-year bill as well as exempt market, demand picked up and dealers were able by bills which had been pressed on the market by com- to work down their inventories despite large offerings of mercial banks following the midyear bank statement date. new issues. At the same time, banks sought to avoid accumulating large reserve deficienciesover the long Independence Day THE MONEY MARKET AND BANK RESERVES weekend. While Federal Reserve open market operations offset the bulk of the reserve drain stemming from the Nationwide net reserve availability and member bank preholiday increase in currency in the hands of the non- borrowings fluctuated somewhat more widely on a week- bank public, Federal funds were in particularly strong de- to-week basis during July than in other recent months, mand at 4¼ per cent. A small amount, however, traded at but the over-all tone of the money market remained 4¼ per cent. Member bank borrowings from the Reserve generally fIrm. Federal funds traded mainly at 4'/8 per Banks rose, but net reserve availability was changed little cent through the first half of the month, and on occasion from the preceding week. there was some trading at 4¼ per cent. During the second Over the middle two statement weeks of the month, there 362 MONTHLY REVIEW,

Table I at both 4 per cent and 3¾ per cent after the weekend. (MANGES IN FACTORS TENDING TO INCREASE OR DECREASE Thus, even with the sharp drop in over-all net reserve MEMBER BANK RESERVES, JULYIN5 availability, member bank borrowings from the Reserve In mlliionsof dollars; (+)denotes Increase, (—) decre.'se ineseess reserves Banks declined to $425 million. The money market continued free of stress in the final Daily SOerlIul—week ended statement week of the month. The major New York City Flat Fsct close an banks developed a substantial reserve surplus, and there July Jull July 14 21 28 was a good flow of Federal funds at both 4½ per cent and 4 percent. Member bank borrowingswere alsomoderate at "Nuitet tartan million. Mb61 tank twUiIAd ycrrea' 24 +264 +1 + 106 + 284 $479 (uul*o1&1) —578 — 76 470 —266 — 400 Qpat1n t,sn,arUn,. + — Over the month as "market"factors absorbed Fo6emI Baser's at + 05 + 166 4.323 —Sal 4 a whole, 245 — 2711 — 42 $4 'r-resaury oporsilansi + — + — million of while market Gold sad foretop W000L — 210 + 16 + 16 299 $116 reserves, System open opera- Curr6y jt.gitd ta_n1i' —803 4. 5 + lIE 4. 225 — 3113 tions million. The of 012cr Puderal Russo,, provided $125 weekly average — 100 ,j.mta InstIl + ITT Of' + + + TO System outright holdings of Government securities rose by — T41*1 'w.ark,t" factors — 8110 .4. 188 + 186 70 1113 $59 million from the final statement week in June DirectFederal Russr, Cr4610 the last week in and hold- t.ranactlonu through July, average System 03,61,nnukOt 1n,Uum4mts of Government securities under Oulrtgb1boldta.D: ings repurchase agree- (losonmani uscuottlus +310 — 65 — 221 + 3 + ments increased million. net Banks's' usrstaneus — — — 2 — 2 — I by $84 Average System Eer4rehIarsg,es'ncnts: 108 — 116 SI holdings of bankers' acceptances, both outright and under Or' ant ur1t1ss + + I +— —+ RinSer,' pthfl8in + 1 — 2 — 12 111 declined $18 million Member hank .. or as — ion + 11 — 7 repurchase agreements by during Other loan,. dlocuunis. and advanoas... — a — a — — 2 — thc month. From Wednesday, June 30, through Wednes- TOtal + i + 111:1 Causal isurwss• + 13 + 17.5 — 230 + 124 — 13

Daily Iowan. Inul of member bank: Total roocre',. Lelu8lng esuit m3'•... 22,171 23.103 22.66.3 21,507 21.0444 Itotuired rouse',,' 21.822 21,678 21,470 21,274 21.5361 Table II Excess ruservas' 849 525 105 328 3488 Bor,ow'n 083 620 42.5 479 5274 RESERVE POSITIONS OF MAJOR RESERVE CITYBANKS Free rssorvno' — 253 — 95 — 130 — 156 — 1799 Ncoiburruwed ,eeei*er 2l.2.s'3 21.183 21.210 21.118 21,3.31)9 JULY INS In miWonsof dollars Nate: Becauseof rou,,d1n, flgurusdO 110%ILroessu2lIr .8,110total,. • T96e0t,CU,r11 use esU.mu.gd. Daily anrage—watk ,nd,d O lncludoo Cb5016t'C IllT061.4ul7 meranryand coal.. A"ae (.8 I Include.,uaaete denointusted In r,1,n eInInrI.,,. rartarsall eating loor weals I AecraCa forfour arch,usded July 28, 1985. banicreserve pniticait ended July J0l11 July July uS 7 14 21. 28'

F. bank. b New Vo,k City

was a marked divergence between statistical reserve avail- Reserve excess or deflclency(—)t 23 6 15 13 14 Less borrowings from Reaetve Banks.. 191 172 43 7 101 ability and money market conditions. In the statement week Lw net Intribank Federal funds I purchases or saiea(—) 338 481 244 — 429 1159 ended , there was a sharp increase in nationwide Gross purchases 930 922 866 660 845 Gross 392 441 622 1,089 666 net reserve availability. "Country" banks, however, built Equnla net basic reserve surplus or delkit(—) —497 —648 —272 4'S —246 up their excess reserves to an unusual degree in the first Net Ion to Oovernment securities dealers 929 654 696 479 690 week of their new statement period, reducing the supply of Federal funds to the market. Consequently, the money 'Thlrty-eiebl banks ontolda New York Cll market was quite firm, and member bank borrowings the Rcservc CX(C55 03 deflciency(—)t 18 15 13 — I II from the Reserve Banks rose to $620 million for Less borrowin66front Reserve Banks., III 157 119 177 i43 week. In the market was less Less net inlerbani, Federal Iundo contrast, moncy distinctly purcha800 or salcs(—) 512 670 756 5111 630 Gras, purchases 1,293 1,227 1,324 1.240 1,271 taut in the statement week ended , even though net Gross sidei 781 336 568 658 641 to million. banks— Equals iset basic reserve aurplus borrowed reserves rose $230 Country or deficit(—) —611 —812 —862 —761 —762 week of their settlement Net loans to Governsnenl now in the second period— ecuritiel. dealers . 285 402 426 304 354 worked down their excess reserves to $142 million from $482 million in the week. At the same time there Note: Because of rounding, figures do not nrceatily add to totals. previous Estimated reserve figure, have not been adjusted for so-called "as of" debits was an in the basic reserve positions of the and credits. These ItcnIs arc taken Into account In final data. improvement t Reseyves held after nil adjusunents applicable to the reporling period ieee money center banks, and Federal funds traded in volume requited reserves and carry-over reserve deficiencies. FEDERAL RESERVE BANK OF NEW YORK 163

SELECTED INTEREST RATES Moy-J,,Iy 19b5 P.,(Cal Po. con,

MONEY MARKET RATES BONDMARK(T YIELDS 480 - — 480 YieIdion new public utility bond, Riofferingyield—* Market ytold Aao —. Ao . - III liii III ° . 4.60 Iii Ii . iii 11111

aa-raiedsoa,onod bondn 440 111111 corporote 4.40

420 derollunch — 4.20 90-dayhna,ce company paper I\ Long-termGovernment tecuriliel — --a.— ___._I r 3-5year (,overnm.nttccuritle, 400TL1 Li 400 — —-—P'' — L/\. [VI 2yeo, 100-eCempI bond, 3 80 320 I month bi Irealury 200

3.60 iL IJJLI! t U-I I lu_I_LI LULIJ iiil II' LLI liii hut 1111111i il,,, ii,, iIi;Iii ¶1 ii,li iii 111.11111 I L nfl 5 12 19 26 2 9 lb 23 30 7 M 21il 28 5 12 19 26 2 9 16 23 30 7 14 21 28 Moy June July May Jun. July Note: Del..,. ike.,,to, businsi.do,ionly. I.e..ond.,-ripu,,g .yndiool. re.fl.ring yi.Idologi,.n i,,c.Ponr.rb.tyi.tilolth. i.O limo it he.b... r.Iriclise.);deiIy aI ,l.Id. of *MONty Oi.&IUTIATtS QUOTIA Doily r.r. of .oN,po.'.d by —ojer Pie..Y0.* City ,bionao mm.dieloIyof,., ml....d I,.., nyridimolo e.-.,op.. ,oIIIeoa.fi,t.d.,.I I.,4, ..c,.,.d byUniled Si.,.,Go..rnn..nl ,e.o,iti.o(o point indiiel.lb. fg,Nrgn,r,m,.tl.corilin.fbondsdn.orceIIabIo.vle, manor onel ondolOoon'n,.J ob I.°y'ong.l.4I.'p .1..for dir.cIIypIo..dlra..._oomo.,pe;th..Il.oti.. oocvrnllsndytypltn,sololl,.year,. compn'.d o,rho boilsof clOilnO b.d prices: lP-on.d.y ,o,.oa Ind.,oI l,,,d.Ilk.,.,. ..o.t r.pr...nlel elk.l,o,,clle,. •oecledI douio$bid r..t ov.nog.. a!ymid. .ilw.nly.....n.d .ly-y.prt..-g....p 3nnyfrorryirq M.ondyi qwotdin lsrn'iof roreoldiscoonlIonas—ofloutelendiag 'hr... o..dsi..momlh T,.o,ury.bjIj,, rating,Of As-. A0.A. end lool lOP-cD MAUnit IDSOUOTLD: Told. ems—As-. .ndAe.,ol.dp ttili or.pIo,l.d Se,rcsa: P.d.noIt.,..,.lank etH...Yonh.l..ndnl G.a.rnnn..f th. l.d.n.lP n's-nd.I.,, ho-...ng do.!yumrn. yi.ld, 1 .,n.en,dAco.ml,dcprpprpr.bs-d,le"o—.pein' Moody.Inn.,,,. Semi,.,and ThW..l, load On.'

day, July 28, System holdings of Government securities date. Investment demand began to improve at the higher maturing in less than one year rose by $131 miliion, while rate levels around midmonth, howcvcr, and as professional holdings of issues maturing in more than one year remained selling tapered off, a better atmosphere developed. At the unchanged. same time, the more comfortable money market conditions after midmonth made it less expensive for dealers to finance ThE GOVERNMENT SECURITIES MARKET their positions. In this environment, Treasury bill rates again moved lower—spurred in part by professional ex- An atmosphere of caution prevailed in the market for pectations that the Treasury's August financing would be Treasury bills during the first half of July. The taut money likely togenerate additional demand. market conditions and associated high costs of inventory At the last regular weekly auction of the month, held financing at the beginning of the period led to an expan- on , average issuing rates were 3.803 per cent for sion in professional offerings early in the month. The re- the new three-month issue and 3.873 per cent for the new sulting upward movement in bill rates (see left-hand panel six-month bills, about 2 and 5 basis points higher than the of the chart) wasaccelerated by sizable bill sales on the part average issuing rates at the last weekly auction in June. of commercial banks following the June 30 statement The $1 billion of new one-year bills sold in the 16 MONTHLY REVIEW, AUGUST 1965 auction at an average issuing rate of 3.875 per cent, com- volume of new issues that were offered during the month. pared with 3.807 per cent for a comparable issue sold on Activity in both markets was light at the beginning of the June 24. A more hesitant tone developed in the wake of the month as investors awaited the terms of the new issues, the July auction and persisted through the end of the month, as major portion of which was scheduled to be offered later in reinvestment demand from the refunding proved disap- the month. In the corporate market, a better tone emerged pointing. The newest outstanding thrce- and six-month at the beginning of the month as the market assessed the bills were bid at rates of 3.81 per cent and 3.89 per cent, re- successful sale of the preceding month's heavy volume of spectively,at the close of the month. offerings. Subsequently, investors became selective, resist- In the market for Treasury notes and bonds, the down- ing efforts of underwriters to price new issues aggressively. ward drift in prices that had begun toward the end of June This investor resistance restrained underwriter bidding and continued in early July as investor activity remained light. led to slightly higher yields on offerings late in the month. (The right-hand panel of the chart shows the rise in bond A $150 million negotiated offeringof the Baa-rated deben- yields that accompanied this decline in prices.) A tem- tures of a leading merchandising chain was quickly sold porary firming in market tone appeared at the end of the out at a reoffering yield of 4.90 per cent in late July. first week, partly in response to press discussion regarding In the tax-exempt market, an element of caution pre- the tenability of the current interest rate levels and the im- vailed early in the period, reflectingthe slow sales of older proved atmosphere in the corporate bond market. Activity issues and still sizable dealer inventories. Around mid- once again subsided, however, and buyers became more month, however, the demand for new offerings and for un- price COnSCIOUS. A contributing factor to the renewed sold balances of old offerings picked up substantially as caution was thc high volume of new corporate issues being commercial banks began to show renewed interest in tax- marketed combined with the rclativcly wide rate differential exempt Securities. Later, investor interest became more between Government and corporate bonds. As the selective, but dealers were able to hold down their inven- month progressed, market activity was further restrained tories, despite the substantial supply of new issues coming by reports of a deterioration in the Victnamese situation into the market. Over the month as a whole, the average and by the approach of the Treasury's August refinancing. yield on Moody's seasoned Aaa-rated corporate bonds rose Discussion of the possibility that an intermediate issue by 1 basis point to 4.48 per cent. During the same period. might be offered lcd to declines, during July, of generally the average yield on The Weekly Bond Buyer's series for n to 2 in prices of issues maturing in two to five years. twenty seasoned tax-exempt issues (carrying ratings rang- Prices of most longer issues also closed lower over the ingfrom Aaa to Baa) declined by 5 basis points to 3.25 per month. cent. (These yield series are shown in the right-hand panel After the close of business on Vednesday, July 28, the of the chart. ) Treasury announced that holders of $7.3 billion of 3% per The volume of new corporate bonds publicly floated in cent notes maturing on August 13—about $3.2 billion of July amounted to an estimated $535 million, compared which was publicly held—would have the opportunity to with $720 million in and $230 million in July exchange their holdings for eithernew 4 per cent I 8-month 1964. The largest publicly offered new corporate bond notes or reopened 4 percent 3½-year bonds. The new 4 per issue of the month consisted of the offering—mentioned cent notes, which will mature on February 15, 1967, were above—by a leading merchandising chain of $150 million offered at 99.85 to yield about 4.10 per cent. The reopened of 47/s per cent sinking fund debentures nonrefundable for 4 per cent bonds of February 15, 1969 were offered at five years and maturing in 1990, New tax-exempt flotations 99.45to yield about 4.17 per cent. Subscriptionbooks were totaled about $980 million, as against $885 million in June open from August 2 through August 4, with payments for 1965 and $835 million in . The Blue List of tax- and delivery of the securities scheduled for August 13. exempt securities advertised for sale closed the month at While the terms of the financing were considered attractive, $756 million, compared with $834 million at the end of the trading activity that developedwas only moderate, and June. The largest new tax-exempt bond flotationduring the prices tended to ease further after their initial adjustment to month was a $175 miHion municipal Baa-rated offering. It the refunding terms. consisted of $1 11 million of general purpose bonds re- offered to yield from 2.80 per cent in 1967 to 3.565per cent OTHER SECURITIES MARKETS in 1995 which were quickly sold, and $64 million of bonds maturing in 1966-70. The latter were awarded at a net in- Attention in the markets for both corporate and tax- terest cost of 3.499 per cent, but reoffering was delayed exempt securities in July was dominated by the substantial pendingsettlement of a legal question.