FEDERAL RESERVE DANK OF NEW YORK 77 w

The Money Market In April

The money market remained generally firm in April, tificates maturing May 15, 1964 or for additional amounts although easing briefly at thc close of the weeksthat ended of the 331 per cent notes maturing February 15, 1966. on and . On these occasions the flow of Subscription books for the exchange were to be open funds to the money market banks coincided with an over- from through May 1. Cash subscriptions were preparation by banks for periods of anticipated stress not to be accepted. around the end-of-quarter statement publishing date, the Prices of outstanding Treasury notes and bonds moved Cook County tax date, and the payment irregularly downward through about the middle of April date for $2.5 billion of one-year Treasury bills. In addi- against a background of gains in business indicators, selec- tion, funds tended to flow to New York as the two-week tive advances in steel prices, and a large volume of cur- reserve settlement periods for "countzy" banks ended on rent and prospective bond offerings by corporations and April 3 and 17. Thus Federal funds, which traded at an state and local governments. In addition, the Government effective rate of 3 per cent during most of the month, securities market still showed the effects of the large dipped to 1½ per cent on April 3 and again to 2¼ per advance refunding operations in March. The unenthusias- cent on April 17. Rates posted by the major New York tic reception accorded the Treasury's new 4½ per cent City banks on call loans to Government securities dealers bondof 1989-94 reflected this atmosphere and contributed were generally within a 3½ to 3½ per cent range, although to the sluggish tone in the markets for Government, cor- they moved down to a 2¾ to 3 per cent range on April 3. porate, and tax-exempt bonds. Prices of Treasury bonds On the Treasury sold $300 million of new steadied in the latter part of the month and improved Treasury bonds of 1989-94, the second sale of Treasury somewhat after the Treasury announcement of terms for bonds through competitive bidding by underwriters for its May refunding in which relatively short issues were reoffering to the public. The successful bid—one of three offered. Treasury bill rates changed little over the month, submitted—was at a price of 100.55119 for a 4½ per as increased supplies offered both in the regular weekly cent coupon, resulting in a net interest cost to the Treas- auctions and in the quarterly auction of one-year bills uiy of about 4.093 per cent. The winning underwriting were readily absorbed by a continuing demand, par- group reoflcrcd the bonds to investors at 100.75 to yield ticularly from public funds. 4.082 per cent. Investors showed only limited interest in Prices for corporate and tax-exempt bonds declined the bonds at this rate, and reportedly half of the issue gradually during most of April in response to many of the remained unsold when the syndicate terminated price re- same factors influencingthe market for Government bonds. 25. the first such in number of new in the j strictions late on April (At sale, held A offerings, especially corporate January of this year, the winning bid carried a price of sector, tended to move slowly. In the latter part of the 99.85111 for a 4 per cent coupon, making the cost to the month, a steadier tone emerged in these markets and Treasury about 4.008 per cent, while the bonds were greater progress was made in distributing new issues. subsequently reoffered at par and sold out immediately.) On , the Treasury auctioned $2.5 billion of one- BANK RIESCRVEB year bills, replacing $2.0 billion of outstanding bills and raising $500 million of new money. The bills, issued at an Market factors providedreserves on balance from the average rate of 3.062 per cent, were delivered on April 15. last statement period in March through the final statement On , after the close of the market, the Treas- week in April. Gains stemming primarily from increases ury announced the terms of its refinancing of the three in float and in vault cash were only partly offset by expan- securities maturing May 15, 1963. Holders of the $9.5 sions in currency in circulation and in required reserves. billion of maturing issues were given the opportunity to Net reserve gains due to market factors were partially effects of •xchange them, par for par, for new 3¼ per cent cer- counterbalanced, however, by the System open 78 MONTHLY REVIEW.

(BANGES IN FACTORS TENDING TO INCREASE OR DECREASE decline and well increase. The advance o MEMBER BANK RESERVES. might vigorous stock prices seemed to reinforce this view. In millionsof dollars; (4-) denotea incrcase, (—) dccrcasa in excess rescrves Against this background, underwriter bidding at the April 9 Treasury bond auction was less aggressive than Daily asrriiis.—wl en6ed at the first such auction in January. Moreover, the new Facts bonds encountered considerable investor resistance when April April AOriI 3 10 17 24 reoffered by the winning syndicate, and the slow distribu- Oeratin tz,nsactlars tion of the new issue contributed to the mildly bearish tone Trea.iurT opeiaSiui.' +133 + 81 — 174 JreJ ftr.Wnll flOat -225 .4- 59 + 705 + 2011 121 already evidcnt in the market. Additional market caution CUrT,W.T Lii lrcu1atIcm — 110 -223 — 1?.) + Onil &id fnIgn aCcount +6 = was induced by further favorable business news and by littler dcoaslta. 010. — 13 —5 83 38 + + + the announcements of selected steel price increases begin- Tu — 144 — 147 SrI 371. + + + ning April 10 which suggested to some observers the pos- Direct Fedal Sesexet credit tranatthar3 Uonnm.nL eurItlus: sibility of inflationary repercussions. At the same time, the litruetie,t L,uzCbauru ox ealeS + 336 .4-. 251 — 133 —267 + 70 Government bond market was influenced the held hider ri-lurches,.enn.inenta + 211 — 60 —40 —42 11l1 by heavier IA,eco. dtoeoulsla. end aitiuncos: tone the for Meaubor bent, t0)fluuCcO — 67 — + 70 — — 04 in market corporate issues—in part as a result Orbi,, — -- — lMZIkcr,' ec.ptenoeS: +1 4.1 of the announcement that a $250 million corporate refund- Ilosiatil. uILtfICbt — 1 — — I — 2 — 4 issue would offered also still UQIIOY rOiiUxtheno agn,eIils ing be in early May. It re- flected the extension of debt in the March Total ÷ 104 + 1113 — 131 —333 — 133 heavy Treasury Membft bank reltrece advance refunding. As a result of these various intluences WItS Federal flenar,, iIaiaM — 44 Ito 20 —+ — + +20 prices fell rather sharply from through April 17, Cet,ii aHocd U zos,rrc,t 40 1111 + 2711 ÷ 61 + 1119 with largest reductions centered in long-term issues. Totalreroest — 233 ÷ 315 Effect ci thana In .-eair,d rtwwes? .... — 1, + 166 — 133 A moderate investment demand developed as prices — 79 4. 154 _1t[5t) moved down, however, and market sentiment strengthened flail; eruras, level ue i,i,czibif beIIk in the latter of the month. While favorable Ihorroetogufrolu ltilWtTIl Ilaal.o 174 ST 157 1411 part continuing Ezeosa roaervcot 484 37:1 525 613 460: business news still exerted a rio, rewrvet,t alit) 264 372 356 1211 restraining influence, the market was bolstered by expectations—subsequentlycon- Nob: Heosnueor rowidhnj. flzui do not neceasaiuy add 10 total.. firmed—that the would confine its re- • hnciudre oliauues In T sear; cuneecj end cesb. Treasury May O TIes. ilgures are oxt2osatd. to the short-term area and by I L,ze..o(or tour weeba ended ArU U. financing offering relatively press comments to the effect that monetary policy was likely to remain relatively easy. marketoperations. Systcm holdings of Government securi- The refunding announcement of April 24, described ties under repurchase agreements declined on average by above, was well received in the market, causing minimal $116 million from the last statement period in March price impact on outstanding issues. Trading activity in through the last statemcnt week in April, while outright "rights" and "whcn-issued" securities was rcportcd to be holdings cxpandcd by $70 million. Net System holdings of rclalively light, and most observers expectcd "attrition" to bankers' acceptances fell by $4 million. From Wednesday, be low. At the close on , dealers quoted the issues March27, through Wednesday,April 24, System holdings offered in the exchange at 10O (bid) on a when-issued of Government securities maturing in less than one ycar basis. declined by $242 million while holdings maturing in more After the close of the market on , the syndi- than one year rose by $142 million. cate marketing the $300 million of new 4¼ per cent bonds of 1989-94 was terminated. The next day the THE GOVERNMENT SECURITIES MARKET bonds began to trade at about 100¾, compared with the syndicate's offering price of 1004, and it was reported Prices of Treasury notes and bonds moved irregularly that good progress was being made in distributing the lower in early April, continuing the declines that had been issue to investors. By the end of the month, the new bonds in progress since about the middle of March, as the were quoted at 100% (bid). Over the month as a whole, market weighed the implications for interest rates of prices of outstanding intermediate and longer term issues advanccs in business indicators, the expanding calendar were from %2 higher to 29 lower. of corporate and tax-exempt flotations, and the imminent Rates for Treasury bills were steady to slightly lower Treasury bond auction. All of these factors contributed to during the early part of April, as buying by state trust a feeling in the market that interest rates were unlikely to funds added significantly to a moderate demand from FEDERAL RLSERVE BANK OF NEW YORK 79 ther sources—readily absorbing the $100 million in- new issues flowed into the tax-exempt sector during the creases sold by the Treasury in each weekly auction. This month, while an expanding calendar of forthcoming flota- trend was interrupted on April 10 and 11 in the wake of tions contributed to a cautious tone in both sectors. both the long-term bond auction and the auction of the Against this background, investor demand proved selec- new one-year bills where dealer awards were substantial tive and the distribution of recently marketed bonds and where the Treasury was raising $500 million of new generally proceeded slowly at progressively higher yields. cash. Investment demand remained strong, however, and Several slow-movingissues moved up as much as 5 to 10 after a small upward movement through about the middle basis points in yield in market trading immediately after of April, bill rates edged lower again until about syndicate price restrictions were removed. Over the month when a cautiousnote reappeared. as a whole, the average yield on Moody's seasoned Aaa- After the announcement of the Treasury's forthcoming rated corporate bonds rose by 4 basis points to 4.23 per refinancing on April 24, some demand for bills arose from cent, while the average yield on similarly rated tax-exempt switching operations out of the issues coming due in May, bonds increased by 7 basis points to 3.00 per cent. but this activity was relatively light. The month closed in The total volume of new corporate bonds reaching thc an atmosphere of caution, with some feelings in the market in April amounted to approximately S345 million, market that rates might be pressing close to the lower compared with $490 million in the preceding month and end of the range likely to be experienced in the near $640 million in . The largest new corporate future. At the final auction of the month, held on issue publicly marketed during the month was a $50 mil- April 29, average issuing rates were 2.898 per cent for lion (Aa-rated) 4½ per cent utility company debenture the new three-month issue and 2.988 per cent for the new issue maturing in 2003. Reoffered to yield 4.37 per cent, six-month issue, 2 basis points lower and 1 basis point the debentures—which are not redeemable for five years higher, respectively, than the rates established in the last —were given only a fair investor reception. New tax- auction in March. exempt flotations during the month totaled approximately $810 million, as against $930 million in and OTNER SECURITIES MARKETS $870 million in April 1962. The Blue List of advertised dealer offerings of tax-exempt securities receded by $4 Prices of corporate and tax-exempt bonds edged lower million during the month, to $631 million on April 30, through most of April, but steadied in the latter part of after having reached a record level of $681 million on the month. As in the Government market, investor hesi- April 17. The largest new tax-exempt offering during the tancy was nurtured by a somewhat more optimistic busi- period consisted of $109 million (A-rated) municipal ness outlook, by concern over the implications of the steel various-purpose bonds. Reoffcrcd to yield from 1.70 per price increases, and by the slow distribution of the new cent in 1964 to 3.40 per cent in 1993, the bonds were Treasury bonds. In addition, a relatively heavy volumeof well received.