r FEDERAL RESERVE BANK OF NEW YORK 251 The Money and Bond Markets in November The tone of the capital markets remained heavy in On a nationwide basis, excess reserves of all member November. lntcrest rates generally continued to move banks averaged $242 million during the four statement higher in the face of persistently large credit demands and weeks ended on November 27 (see Table I), little changed considerabic investor restraint. In the early days of the from October.' Member bank borrowings from the Federal month, the suspension of the bombing of North Vietnam Reserve Banks rose by $82 million on average in November. generated some optimism in the capital markets, but the In the first statement period of November, the basic favorable market reaction was tempered by caution on the reserve positions of the forty-six major money market eve of the national elections. Subsequently, the uncertain banks deteriorated sharply. Reserves were absorbed in status of the Vietnam peace negotiations, together with part as a result of an expansion in loans to Government evidence of continuing economic strength and rather firm securities dealers and nonbank financial institutions, while money market conditions, generated widespread caution. borrowings from foreign branches also contracted. As a Large-scale speculation in the foreign exchange markets, result, the average basic reserve deficit of the forty-six which reflected the view that the German mark might be leading reserve city banks soared by Si .2 billion in the revalued upward and that the French franc might be November 6 statement week to a $3.3 billion averagelevel devalued, was also unsettling to the domestic capital mar- (see Table II), and a substantial demand for Federal funds kets but only temporarily. produced trading in volume at 6¼ per cent. At the same Against this background, yields on corporate and tax- time, the major money market banks also increased their exempt bonds and on all but the shortest maturities of borrowings from the Federal Reserve Banks. Government securities rose progressively. Very firm con- The money market remained quite firm through most of ditions generally prevailed in the money market during the the following week. The major city banks managed first half of the month, when the reserve positions of banks their reserve positions cautiously in preparation for the in the leading money centers came under mounting pres- Veterans Day holiday weekend. The New York City sure. Subsequently, the tone of the market eased consid- banks, which were experiencing considerable reserve •erably as reserve distribution shifted in favor of banks in the pressure primarily as a result of a contraction in demand major money centers. in the closing days of the month, a deposits and a lagged increase in required reserves, bor- firm tone again predominated but no pronounced pres- rowed heavily at the Federal Reserve discount wiidow sures were evident in the money market. over the tong weekend and increased their purchases of Federal funds (then trading predominantly at 6¼ per SANK RESERVES AND THE MONEY MARKET cent) to near-record levels. A similar pauern of behavior was evident at large banks in other money centers, which The basic reservepositions of banks in the leading had to cover net reserve deficiencies carried over into the money centers were generally under substantial pressure November 13 statement week. Toward the end of the during the first half of November. As a result, these banks period, however, the reserve positions of the money mar- borrowed heavily in the Federal funds market—where ket banks improved somewhat, the large amount of re- most trading occurred in a 6 to 6¼ per cent range—and serves which these banks had accumulated earlier flowed filled a portion of their residual needs at the Federal Re- into the Federal funds market, and the tone of the money serve "discount window". Over the last two statement weeksof the month, the average basic reserve deficitof the forty-six major money market banks declined, while the effective rate on Federal funds eased to a predominant I Data cited for excess reser.es do not include the carry-over of 5½ to 6 per cent range. excess reserves or deficiencies. MONTHLY REVIEW, DECEMBER 1968 TUbS. I Table U RANKS FACTORS TENDINGTO INCREASE OR DECREASE RESERVE POSITIONS OF MAJOR RESERVE CITY SIRUDER SANK RESERVES, NOVEMBER mi NOVEMBER 1961 1 million,uS dollars. (4) deflotCs lncmsae. In millionsof dollars (—) decrease Inexcess reserve, Daily awragti—wttk soded an four In daily HOlIgS$— etwi affacting Changes basic rats?,, positions Sftadam aesE saded m Nov. No,. Na, No,. Mo;. 27 Nut 27 Facbai 6 1.3 20 N. Nor. No;. Nov. 6 13 27 Eight be.ki t New Volt C1i7 or 24 78 78 — 63 29 (actors Reserve excess detlcjency(—).... 'Martat" Lees borrnwinga from — 403 — 174 936 36 129 43 II 65 Mibn? toni rOOlLlTt'd Tcserwe +104 + -3.7 Reserse Bank, . —UI lii 201 191 Less et Intetbank Federal funds (Jp,ra&ift.I t utoartilifli l,nbtut&tl + + +08 + or 1,114 312 1.102 536 — 410 4. Ml purchases eales(—) 1.171 1.809 Vedo;&l lIner.. soot - U + 4$ + Grog: purchase., 1.930 2.4)6 1.042 1.494 1.9:5 426 — 22 441 779 466 828 1.181 TreaaUYY Q0IIqS11orO 410 + 3 + + Gross ,iiIe, .. 4 — — 23 — Ci — 93 Equals its, ha5ii reserve sujplu, 43616 and forsiananmuill + II ir — 426 — — — or dctlcit(—) —l,182 —1.860 —1,079 —1,137 tin outside beets 11.0 357 584 TO —2.216 Net loansto Government — —. 475 OUter Federal Iteao'e account. (r,attt.. 6? 150 + 01* + securities dealers 886 765 379 489 680 +2 Nctcarry-ovcr,excmorde6clt(—)t 9 18 44 57 32 — 2? —364 4.121 .+- Total 'Uub1' CtO3 +426 IaO__ Dirsot F.der.l 80Mm credIt llslrIy-eIgbi bsnka outdeNew Toil CIty Danu.ClIOftI in*rtnt Instnhiaeata Opm Reserve excess or deftclcncy(—).... — 68 127 — 79 19 — holdings: Outright — Lets borrowings from Oo.seflm! nacuilclee — 51 4. 201 —. 53 — 55? 400 Reserve Bank' 119 242 168 154 171 BarkorV smeptanoeS —1 + 5 LesS net Lnte,bank Fcdcral runds 43+ purchases or slet(—) 1.944 2.029 1.877 1.595 1.861 lIrpurchi.. agro;o;o;1a: Gross pisr,'ha,.j .. 1,1!) 3.369 3.122 2.867 3.102 — — 51 Goonmoerl (realitIeS + + II —172 Gross suIgs —. 1.167 1.2110 1.246 1,272 1.241 I — — DankorV aooe,t.anco; Equals net basic reserve surplus 2l—r—13 — — or dcficit(—) ... —l132 —2,144 —2,124 —1,730 —2,032 Fed..i1 .lrn(P othgitlOltI + 7 + 6 Nd loans to Government Member bank borrectage —105 —164 + 71 + 85 accuritt detkra 857 412 515 318 541 Net excessor deflcit(—)t.. 10 83 — 1 32 Other loan,. diemuni.. and edvafl0M.... carry-over, i— — — 430 — 48? — 368 11? + 64 Note: Becauie of do not add In tolall. roundtng, 8guzea the — — Reserve, held after ctrtaln adjustments applicable to report1n peilod (ios. r.swvea — 164 + 200 — 301 53 20$ lei.s requited rcvesvor. t Not reflected in data above. Table 132 Daily norsat samOa AVERAGE ISSUING RATE8 AT REGULAR TREASURY SILL AUCTIONS Mw,b,t bank: In per cent Total rcwrcoo. Irciudlot vault Cub 20.118 27.061 26.934 26.023 30,712* 26,400 26,470* Riutuireti men 28,165 26.560 26.142 Weekly auctiondatn—N,nmber 1968 ltzons rmr,,,s 1*0 453 190 819 2422 801 073 511 511 1001 MattwItIs floorusitlegn — — Fr,., i or net borrowed I—I roe.. -— 100 182 —220 403 290* t+ 26,378 26.410 23.943 28.1121 Nonbijrrow,dnoun??,., 5,9241 60 121 Nit en?r7-uco. cars or deficit (—)I ... 142 220 l3$ Thenon SIs.m_oolb .- ChangesIn Wodnndjy boils Monthlyauction dates—Septanbsr.Noistsbtr 1968 3gs50M Asomint baIdillis 01 Costs ovint o;ounitll$ inatrl'tq I.: Sept. Oct. I Na,. 24 24 22 IriS than one roar + 88 + 19 —4.631 + 628 —ecu Mo, Ua.n on. sear — — 4-42*4 IC 84 ( Nine-month - 5,202 3.444 5.693 rotaj + 88 + 72 1.337 +823 — *41 One-year 5.108 5.401 5.568 to totals. Not.: tenureot rounding. figurer etc not notesesrily add with the dlsCOUflta laetudi'i ebanOenin Tvr,aeury curreres sad rub. • Interest rates on bills are quotedIn terms of a 360.day year, dortmnLnntoil U. InrifignonfreItCira. frompar asthe return on the face amount of the bilIt payable at rnaIiztIW I Ineluitea ereets the amount actually invcaicd, would be Aserateor rour weeks caded on Noeernber 27, 1948. Bond yield equiva1cte, related to I fllCCts free rcen?ven. higher. I Not IOOht lcd Is,accrue 1l& ot or slightly FEDERAL RESERVE BAIK OF NEW 253 market cased sharply. Thus, the effective rate on Federal that new obstacles might impede the Vietnam peace talks. funds declined to 5¼ per ccnt on November 13, and funds In this atmosphere, prices of Treasury notes and bonds traded at rates as low as ¼ per cent latc that day. generally fluctuated narrowly in quiet trading during the The tone of the money market was comfortable during first statement period of November. the November 20 statement period, in part because mem- A weaker tone subsequently predominated in the ber banks had carried a substantial volume of excess re- coupon sector. Market sentiment was adversely affected by serves into the period (see Table 1). The average basic increasing uncertainty over the Vietnam negotiations, by reserve position of the eight major New York City banks the heavy tone in the markets for corporate and tax- linproved markedly (see Table LI) as a result of an in- exempt bonds, and by some investment switching out of crease in demand deposits and a contraction in loans to longer term Treasury issues into higher yielding corporate Government securities dealers, while their liabilities to bonds.