The Money and Bond Markets in July 1965
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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 New York City 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 July 1, 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. July 28. 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,AUGUST 1965 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, JULY IN5 availability, member bank borrowings from the Reserve In mlliionsof dollars; (+)denotes Increase, (—) decre.'se in eseess 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 July 7 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 July 14, 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 July 21, 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 loansto 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.