The Money Market in May 1963
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FEDERAL RESERVE BANK OF NEW YORK 89 DEVELOPMENTS UN SELECTED DEMAND SECTORS turers of machinery and equipment edged somewhat above the plateau that had been maintained in the preceding five Like industrial production, activity in the housing months. Despite theirlatest gains, however, these indicators sector has shown renewed buoyancy in recent months. are still below, or only slightlyabove, the high levels already After being curtailed by unusually severe weather during attained during the second halfof last year. Moreover, out- the winter—a factor not fully taken account of in the lays for commercial and industrial construction continued seasonal adjustment procedures—outlays for private resi- sluggish in May, and were below their level at the end of dential construction rose by about $1 billion (seasonally 1962, having declined in three of the five months so far adjusted annual rate) in April and by an even greater this year. The performance of these various indicators thus amount in May (see Chart II). A prospect of still further continues to raise questions as to the extent of the risc in advances over the near term is suggested by the 28 per actual plant and equipment spending that can be expected cent jump from February to April in the number of hous- in 1963. ing units started. Moreover, despite the sharp increase in Developments in the consumer sector, on balance, ap- starts and recent declines in the number of building per- pear to be encouraging. To be sure, in recent months the mits issued, the backlog of unused permits has apparently net increase in consumer credit outstanding has been remained at a high level. somewhat below its rate in the fourth quarter of 1962, In the area of capital spending, the winter survey of the as repaymente of existing loans have increased at a faster Commerce Department and the Securities and Exchange rate than new loan extensions. Moreover, retail sales Commission and the spring McGraw-Hill survey had apparently declined somewhat in May. Their volume re- pointed to increascs in outlays for plant and equipment mains at an advanced level, however, arid consumer in- of 5 per cent or more for the year as a whole. A later comes have continued to expand—with the April gain the reading of such plans will be available with the release of largest of any this year. In addition, consumer buying the second-quarter Commerce-SEC survey in early June. plans moved up in April, according to a survey conducted In the meantime, available monthly indicators related to by the Census Bureau. Intentions to purchase new cars capital spending show a mixed pattern. In April, output and household durables increased from their already high Wnoved up in industries producing construction materials levels at the start of this year and were above the levels and business equipment, and orders placed with manufac- reported in April 1962. The Money Market In May The money market became somewhat firmer during 3¼ per cent certificatesof May 1964 and for the reopened May. Federal funds traded almost entirely at 3 per cent, Wa per cent notes of February 1966 totaled S5.7 billion and in the last half of the month the demand for Federal and $3.3 billion, respectively. Only $0.5 billion of the funds at that rate often exceeded theiravailability. Average three maturing issues was redeemed for cash, with redemp- member bank borrowings from the Reserve Banks—at tions by the public amounting to about 8½ per cent of its $190 million—were accordingly somewhat higher than maturing holdings. in other recent months. Rates posted by the major New Prices of outstanding Treasury notes and bonds moved York City banks on call loans to Government securities irregularly higher in the first half of May, as the market dealers were quoted predominantly within a 3/4 to 3½ reacted favorably to the short-term offerings in the Treas- per cent range. Treasury bill rates moved up moderately ury's May refunding. Demand was also buoyed by the after midrnonth in the firmer money market atmosphere. market's feeling that there would be no further Treasury On May 15, approximately $9.0 billion of the $9.5 financing operations in the immediate future, by the lower- billion of Treasury notes and certificates eligible for con- ing of the Canadian bank rate on May 7, and by a feeling version in the May refunding were exchanged for the two that interest rates would change little over the near term, sues included in the offering. Subscriptions for the new whatever might be their movement over the longer term. 90 MONTHLY R}WIEW, JU?4E 1963 Prices receded in the latter half of the month, however, BANK RESERVES when news of further business improvement and the con- tinuing large balance-of-payments deficit, combined with Market factors absorbedreserves on balance from the market discussion of a possible shift in monetary policy, last statement period in April through the final statement once again turned the attentionof marketobservers to the week in May. Reserve absorption, primarily resulting possibility of a rise in interest rates. Prices of corporate from a contraction in float, from a routine Treasury in- bonds moved fractionally higher during May in the face of a terest payment to the Federal Reserve Banks on May 15, relatively light calendar of new offerings,but prices tended and from an expansion in currency in circulation, more lower toward the close of the period. In the tax-exempt than offset the release of reserves stemming from reduc- sector, where the volume of new issues continued heavy, tions in required reserves and in Treasury deposits with prices held generally steady in the first half of the month the Federal Reserve Banks. System open market opera- but weakened in the latter part of May. Both markets tions only partially compensated for the net reserves were restrained, however, by the sluggishdistribution of absorbed by market factors. System outright holdings of two large, fully priced new issues reoffered during the Government securities increased on average by $321 mil- period. lion from the last statement period in April through the last statement week in May, while holdings under re- purchase agreements were unchanged over the month as a whole, leaving the balance in that account at zero. Net System holdings of bankers' acceptances declined by $2 CHANGES IN FACTORSThWDING TO INCREASE OR DECREASE million. From Wednesday, April 24, through Wednesday, MEMBER BANK RESERVES, MAT 2963 May 29, System holdings of Government securities matur- In million, of doflsre; (+) denotes Inaaae, (—) decreasein ex reserves ing in less than one year rose by $3,462 million, while hold- ings maturing in more than one year fell by $2,910 million. Daily sneraa—tektnded — .— — — Net P.ctcr May May May Pay May '" THE OOVERNMENT SECURITIES MARKET 1 8 15 22 OpeTatinS tranrertiore Prices of notes and bonds continued to rise — a — so 114 '5 341 Treasury T0001ujy 000rsns + S ÷ —+ + fl.amiv float — 397 + — 74 120 413 —478 in from their lows on — — + 37 — 10 —220 gently early May mid-April fairly Currenoy In otoculaUre + 104 171 174 + fold ond forolen occount •. .4. 34 — 1$ — 20 — 34 + — broad investment demand. Market confidence was — 10 — Other de0001tI..n. — 14 + 11 + S 1011 + 101! bolstered the favorable response accorded the Treas- rotal —249 ...1fl1 —1133 +070 —879 —54! by ury's May refinancing operation, in which the two issues Direct Federal Recentcredit tranrectioifl offered in exchange were of relatively short maturity, and Onvorumsat e.rwltlei: 0170011 n.rtut 01000000 by market expectations that debt-limit considerations 5? +4117 99 — 511? — 4 +$11 hold 00000 r%lu70Ik0 + + would further in the ncar — — — prevent Treasury financing .000001100t0 + 161 + 78 — 115 15n3. tIliOolu!ia.104 future. The May 7 reduction from 4 per cent to 3½ per ed,nntrn: — 15 100 Member 0000k borrOwthll . — 03 + 1' + So + 1 + cent in the Canadian bank rate reinforced this improve- Othor j + I — I —? 23 —St Bonknru .staoo: ment in atmosphere, as did the more optimistic sentiment l11oitghtootrIihit — + 1 + 1 —1 —2 Umodor reahI,chea* in the bond market. this — — — — corporate Against background, ensem00ta — — intermediate and term — prices of longer Treasury obliga- +154 4.538 ÷ 70 —341 43 + tions moved generally higher through midmonth, with only Member bank l000V5 —222 143 With P1ornl flens11wm, — 93 00? — tel $7 — a brief from 8 10, when -4- —+ — interruption May through May Coeb nhlmiwud Ia reaerooet... 55 — 035 + 235 14 +HO 12 + reports were received of the reception accorded a —UI —15? poor Total — 73 + 03 :i + issue and of renewed outflow of Prior Eliotof change loretuired large utility a gold. reicrnent — 53 —10? — 55 + 90 + 79 +154 to the midmonth settlement date for the Treasury's re- Exoacs remwet —104 — 15 97 — 0 — 21 — 83 + financing operation, a fairly broad volume of switching Daily bernie 1e003 of oeinber bask: activity developed featuring demand for the reopened DatagofrunRaoor,eBiL1 94 150 199 551 556 100: Eloeen r0000067 40? 343 459 400 431 4220 3% per cent notes of 1966 and also for the 4½ per cent From irvomt 510 251 550 171 169 2553 bonds of 1989-94 sold by the Treasury in April. By mid- Note: lieclohIeof ramniding. figure. do cot II600W?U7 add to toOnhi. May the price of the 494's had risen almost to the 100¾ • sad cash. 1n1co4e. obigeein Treasurycuyroy level at which the underwriting syndicate had originally O Ttumr figure. ii. S A,oregotoo fire wer dad M&y 19. reoffered the bonds. FEDERAL RESERVE RANK OF NEW YORK 91 A weaker tone was evident in the last half of the month, slightly through most of the month under the influence of as market participants pondered the implications for moderate investment demand and a light calendar of interest rates of reports indicating further advances in prospective offerings.