Greenbook/Tealbook

Prefatory Note

The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the bestpreserved paper copies, scanning those copies, 1 and then making the scanned versions text-searchable. 2 Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.

1

In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing).

2

A two-step process was used. An advanced optical character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff.

Content last modified 6/05/2009.

CONFIDENTIAL (FR)

SUPPLEMENT

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for the Federal Open Market Committee

By the Staff Board of Governors of the Federal Reserve System

June 19,

1970

SUPPLEMENTAL NOTES

The Domestic Economy

New orders for durable goods.

New orders for durable goods

rose 3 per cent in May, according to the advance report.

The April

level revised down slightly further and was about unchanged from March. The April-May average is unchanged from the first quarter.

Shipments

increased and the backlog declined another 1 per cent.

MANUFACTURERS' NEW ORDERS Seasonally adjusted, monthly averages, billions of dollars

1970

I

April-May S average Durable goods, total

29.1

April

May May Advance

28.7

29.1

29.5

Primary metals Iron and steel Other primary metals

4.6 2.0 2.6

4.8 2.1 2.7

4.9 2.2 2.7

4.7 2.1 2.6

Motor vehicles and parts Household durable goods Defense products Capital equipment Machinery and equipment

3.6 2.0 1.7 8.5 6.3

3.8 1.9 1.7 8.3 6.2

3.8 1.9 8.2 6.1

3.8 1.9 2.0 8.3 6.3

All other durable goods

8.7

8.6

8.4

8.8

1.5

The major factors in the May increase were substantial increases for the fabricated metal products and aerospace industries; the latter was apparently mainly from defense orders. and other consumer durables were unchanged.

Orders for autos

Orders for machinery and

equipment rose, but the average for the second quarter so far is still below that for the first quarter.

- 2-

Personal income.

Personal income declined by $7.8 billion

in May, reflecting a reduction of about the same magnitude in transfer payments.

In April, personal income had risen by $18 billion,with a

rise of $12.7 billion in transfer payments.

The erratic movements were

primarily a result of a nonrecurring, retroactive increase in social security payments, which amounted to $8 billion annual rate.

Exclusive

of the boost and decline caused by the retroactive feature of the social security increase, personal income rose by $10 billion between March and May.

The Federal pay raise in April also was retroactive,

with the extra payment spread about evenly between April and May; there will be a small offsetting decline in Federal payrolls in the June personal income figures.

PERSONAL INCOME, 1970 Seasonally adjusted annual rates, billions of dollars

May

March

April

$783.3

$801.3

$793.5

71.3

84.0

76.1

Wages and salaries Government Private Manufacturing

535.1 110.5 424.6 160.4

540.3 117.1 423.2 159.4

539.9 117.5 422.4 158.4

Other sources

176.9

177.0

177.5

Total Transfer payments

Wages and salaries declined slightly in May, primarily reflecting another cut of $1 billion in manufacturing payrolls, to a level $2.6 billion lower than in December 1969.

The May drop in

- 3 factory payrolls reflected the further decline of employment and average weekly hours.

Construction payrolls also declined in May,

mainly because increased strike activity kept many workers off the job. In other private sectors payrolls continued to rise but at slower rates than in 1969. In the first five months of 1970, personal income averaged 7-3/4 per cent higher than in the comparable period of 1969; in the previous year, the rise amounted to 9 per cent over the comparable time period. Consumer prices.

The consumer price index rose 0.4 per cent

in May, a decline from the 0.6 per cent posted in April as smaller increases for most services and for nonfood goods were reported in May. But allowing for seasonal changes, the CPI increased 0.5 in both April and May.

CONSUMER PRICES (Percentage change over previous month, seasonally adjusted)

1969 November December All items

0.6

0.6

January 0.6

1970 February March 0.5

0.4

April

May

0.5

0.5

Price increases for durable commodities, reflecting large increases for used cars and houses, accounted for about one-third of the over-all rise in May.

Among nondurable, nonfood commodities,

prices for gasoline declined sharply but were more than offset by increases for apparel and housekeeping supplies. rose 0.3 per cent.

Grocery store prices

-4-

The cost of services rose 0.5 per cent, the smallest increase since last November, and accounted for about one-third of the over-all Medical care services showed the smallest increase

increase in the CPI.

since last November, as the slower rate of increase in hospital rates offset a faster rate of rise in physicians' fees.

Further marked

increases in transportations costs reflected increases in costs of local transit fares and automobile insurance and repairs.

The Domestic Financial Situation Commercial paper.

The preliminary regular monthly release on

outstanding commercial paper indicates a considerably larger seasonally adjusted increase in May than was suggested by the new, and apparently not yet entirely reliable, weekly series that was available at the time of preparation of the Greenbook. did the weekly data, bank affiliates

For May, the monthly series shows, as

a large increase in

(seasonally unadjusted).

commercial paper issued by Nonbank related paper, season-

ally adjusted, did increase less rapidly than in April, but this reflected a reduction in directly-issued commercial paper and a sharp increase in dealer-placed paper. much slower increase in

The weekly series had suggested a

dealer-placed paper other than bank-related and

this was reflected in the Greenbook, particularly where it was cited as a partial explanation of the large May increase in business loans at banks.

- 5 COMMERCIAL AND FINANCE COMPANY PAPER (End-of-month data, in millions of dollars)

March

April

May

Amounts outstanding Total commercial and finance paper 1/ Bank related 2/ Nonbank related 3/ Placed through dealers 4/ Placed directly 4/

36,406

38,276

39,652

6,433

6,542

7,465

12,096 17,877

12,161 19,573

El

12,674 19,513 p/

Net Change Total commercial and finance paper 1/ Bank related 2/ Nonbank related 3/ Placed through dealers Placed directly 4/

/k

476

1,870

466

109

279 -269

65 1,696

1,376 p/ 923 513 -60 p/

p/ Preliminary. 1/ Combines seasonally adjusted nonbank-related paper and seasonally unadjusted bank-related paper. 2/ Seasonally unadjusted. 3/ Seasonally adjusted. 4/ This table is different in format from past Greenbook tables in that the lines "placed through dealers" and "placed directly" in this table exclude bank-related paper.

Nonbank depositary intermediaries.

Deposit growth during

May at S&L's showed considerable moderation from the March and April pace, and was not as strong as had been estimated earlier.

At 5.4 per

cent, however, the preliminary seasonally adjusted annual rate of deposit growth during May was still above the rates in early 1970 and all but the first quarter of 1969.

-6-

DEPOSIT GROWTH AT NONBANK THRIFT INSTITUTIONS (Seasonally adjusted annual rate, in per cent)

Mutual Savings Banks

Savings & Loan Associations

1969 - QI QII QIII QIV

6.1 4.3 2.0 3.3

6.0 3.7 2.1 .4

6.0 3.9 2.1 1.4

1970 - QI

2.6

1.5

1.9

4.4 6.4 6.0

9.1 8.9 5.4

7.5 8.1 5.6

6.2

7.2

6.8

March* April p/* May p/*

B

Memo: April and May

/p

* Monthly patterns may not be significant because of seasonal ment difficulties. 2/ Preliminary.

adjust-

Portfolio adjustments made by S&L's during May tended to follow the same pattern evident in previous months.

Their net increase

in mortgage acquisitions showed modest, roughly seasonal, improvement from April but remained well below the year-ago pace.

Acquisitions of

liquid assets continued to be emphasized; in the two months since March, such holdings had increased by over $900 million, which contrasts with a net decrease during the same period last year. New commitments to acquire mortgages showed a sharp seasonally adjusted increase in May for the second consecutive month and presage a sizable step-up in mortgage acquisitions--and probably a corresponding de-emphasis on liquid asset holdings.

Maintenance of the recent pace

of new commitment activity will depend somewhat upon future deposit

-7-

receipts and especially upon experience during the reinvestment period that will begin in a week.

Dependence upon savings flows will be

moderated, however, by the recently-developed liquid asset cushion and by the availability of FHLB advances.

OUTSTANDING MORTGAGE COMMITMENTS- / Insured Savings and Loan Associations (Millions of dollars, seasonally adjusted)

1969 QI, end of period

6,887

QII,

"

6,877

QIII,

"

6,262

QIV,

"

5,748

"

5,094

1970 QI, April

5,371 E/

May

5,720 p/

1/ Includes loans in process. p/ Preliminary.

Bond markets.

Reflecting the pace of offerings and announce-

ments, the staff has raised its estimate of corporate bond volume in the public market for June and July by about $200 million for each month.

These higher estimates still assume that a considerable volume

of announced offerings will ultimately be postponed.

Recent data have

also led to an upward revision of $150 million in estimated tax-exempt issues for June and $100 million for July.

-8-

SECURITY OFFERINGS- / (Monthly or monthly averages, in millions of dollars)

Corporate Bonds Public offerings 19691/

Private placements

1,061

468

QI

1,526

418

QII*S/

2,270

May*e/ June

Stock

State and local bonds

Total

700

2,229

716 1 /

2,660y /

1,350

365

465

3,100

1,226

3,000

300

200

3,500

1,000

/

1,800r/

400

600

2,8001/

1,050

July e/

1,7001/

300

500

2,5001

990

1970

1/ e/ r/ *

/

/

/

/

1,1001 /

Data are gross of underwriting expenses. Estimated. Revised. "Public Bonds" and "Total" include AT&T rights offering of $1.5 billion in May.

- 9 INTEREST RATES Late 1969 Highsa

Lows

1970 May 25

June 18

Short-Term Rates Federal funds (weekly averages) 9.32 (12/11)

7,45 (3/25) 7.84 (5/20)

7.80 (6/17)

3-months Treasury bills (bid) Bankers' acceptances Euro-dollars Federal agencies Finance paper

CD's (prime NYC) Highest quoted new issue Secondary market 6-month Treasury bills (bid) Bankers' acceptances Commercial paper (4-6 months) Federal agencies CD's (prime NYC) Highest quoted new issue Secondary market

8.08 9.00 11.56 8.39 8.25

(12/29) (12/31) (12/18) (11/20) (12/3)

6.00 9.05 (12/31)

6,08 (3/24) 7,13 (3/30) 8.00 (4/20) 6.80 (4/10) 7.25 (4/28)

7.01 6.73 8.00 7.88 9,06 9.55 7.22 (5/22) 7.26 7.63 7.75

6,75 7.19 (4/3)

6.75 8.12

6.75 8.15

7.30 8.127.88 (3/30) 8.13 6.91 (4/17) 7.52 (5/22)

6.97 .

6.25 9.15 (12/31)

7.00 7.00 (4/1)

7.00 8.20

7.86 (11/24) 6.25 (12/12)

6.20 (4/13) 7.32 3.80 (3/27) 5.20 (5/22)

7.20 5.40

8.33 (12/29) 7.14 (12/29)

7.05 (3/25) 8.08 6.55 (2/27) 7.52

7.96

7.91 (12/31) 8.91 (12/31)

7.78 (3/10) 8.18 8.57 (3/10) 9.06

8.57 9.28

8.8.5 (12/5)

8.20 (2/27)

9.29

Municipal Bond Buyer Index Moody's Aaa

6.90 (12/19) 6.57 (12/26)

5.95 (3/12) 7.02 (5/21) 7.03 5.75 (3/12) 7.03 (5/21) 6.95

Mortgage--implicit yield in FNMA auction 1/

8.87 (12/29)

9.04 (4/20) 9.18

1-year Treasury bills (bid)

Prime municipals

8.09 9.00 9.25 8.58

(12/29) (12/31) (12/31) (11/20)

6.18 (3/23) 7.25 (3/30)

7.00 8.32

8.00-' 8.25 7.66

Intermediate and Lone-Term

Treasury coupon issues 5-years 20-years

7.38

Corporate

Seasoned Aaa Baa New Issue Aaa No-eall protection Call protection

9.05 (5/22)

9.30 (6/15)

1/ Yield on 6-month forward commitment after allowance for commitment fee and required purchase and holding.of FNMA stock. Assumes discount on 30-year loan amortized over 15 years. e--estimated

- 10 -

International Developments Yesterday, June 18, the Central Bank Council of the Deutsche Bundesbank decided to raise the minimum reserve requirement of German banks by between 10 and 20 per cent, effective July 1.

The size of the

increase will be determined at the Council's next meeting on July 1 and will depend on whether deflationary action is taken by the Government. The Council's action is designed to offset the impact of the recent capital influx (see page IV - 9) on the liquidity of the German banking system, as well as to underline the Bundesbank view (page IV - 13) that there is no sign of slowing in the German expansion and that the situation continues to require restrictive policies.

Corrections: Section I, page 8.

In

line 8 substitute favorable for

probable. Section II, page 6.

The high employment surplus for QI

1971 and again for QII 1971 should be$15.5 billion, instead of $12.8 billion shown for each period. Section IV, page 3.

In the fourth line from the bottom

of the page, the year should read 1969, not 1970.

SUPPLEMENTAL APPENDIX A:

REAL ESTATE INVESTMENT TRUSTS*

The combination of excess demand for mortgage credit and borrower difficulty in tapping traditional sources of funds to finance real estate have fostered a rebirth of the real estate investment trust (REIT).

Although these trusts still supply only a small proportion of

the total funds to the mortgage market, they have themselves been a significant borrower in other sectors of the capital markets, especially in the stock market. New equity issues by real estate investment trusts in 1969 represented about 10.5 per cent of total corporate stock offerings in that year.

Combined gross equity and debt offerings by these financial

intermediaries were approximately $975 million in 1969.

In the first

six months of 1970, the industry raised about $650 million in the capital markets, out of an anticipated $1 billion for 1970 as a whole. NEW SECURITY ISSUES BY REAL ESTATE INVESTMENT TRUSTS (Amounts in millions of dollars)

A t Amount 1969 - QI QII

Equity Issues Per cent of Total New Stock Issues

QIV Year

34.0 148.6 208.9 488.0 879.5

1.7 6.6 11.6 21.2 10.5

1970 - QI QII

151.0 170.0

7.0 12.0

QIII

Source:

Amount

Bond Issues Per cent of Total Public Bond Issues

20.0 63.9

0.6 2.0

11.5 95.4

0.3 0.8

207.0 110.0

4.2 1.7

FRB.

*Prepared by Miss Eleanor Pruitt, Economist, and Mr. Rodney Gross, Research Assistant, Capital Markets Section, Division of Research and Statistics.

A - 2 A real estate investment trust is an investment company which pools the funds of individual investors and institutions and places them largely in mortgage, construction, and development loans or investments in real property.

The REIT is similar to a mutual fund

in that the trust is simply a conduit through which income from investments flows through to the shareholders.-

Like a drilling fund

or a cattle fund, ownership in the trust takes the form of shares of beneficial interest. There are basically two types of REITs.

Equity-oriented

trusts invest in real property, primarily income-producing property such as apartments, shopping centers, and commercial buildings.

Mortgage

investment trusts, on the other hand, invest in loans secured by real property, with the mix of short-term and long-term mortgages varying considerably among firms.

Some trusts are hybrids, which invest in

both real property and mortgages.

Recent changes in Federal income tax

legislation and the greater flexibility of the hybrids have resulted in a new trend toward formation of hybrids and conversion of existing equity trusts.

There are probably over 125 trusts in existence at the

present time, of which only about 25 or 30 appear to be predominantly equity oriented. The older, established mortgage investment trusts formed in the early 1960's still maintain a fair proportion of their assets in

1/ In order to maintain its freedom from corporate taxes, at least 90 per cent of the trust income must be distributed to shareholders.

Apermanent long-term mortgages.

3

Most of the second generation trusts

founded in 1969, in contrast, tend to concentrate on shorter-term first mortgage loans, primarily construction and development loans on income-producing property.

However, it is believed by some industry

observers that interim financing will become less important as an investment outlet for the funds of the real estate trust industry in a few years, and most REITS in their investment policy statements admit the possibility of acquiring long-term VA and FHA mortgages at some future time. The leverage necessary for the growth of the second generation mortgage trusts comes from long-term debt issues, bank loans, and, in the case of a few trusts, issuance of commercial paper.3/ Banks which lend to REITs have tended to insist on a minimum investment in longterm mortgages, which are considered to provide more stable cash flow and to be less risky than interim financing, particularly construction and development loans.

Such loans are quite vulnerable in periods of

depressed economic activity.

Moreover, should financial conditions

ease over the next few years and currently high interest rates decline somewhat, the REITs might find permanent mortgage financing relatively more attractive than at the present time. Net flows of funds from REITs into the residential mortgage market were less than $200 million annually until 1969, when their net

3/ As of mid-1970, there were only some seven or eight trusts which had issued commercial paper, and the outstanding volume was estimated at about $200 million, an insignificant fraction of the total $38 billion for all issuers.

A-

4

acquisitions of single and multi-family mortgages jumped to about $900 million.

It is estimated that the 1970 total will be only slightly

higher, about $1 billion.

Their acquisitions of home mortgages amounted

to about $100 million in 1969, or less than 1 per cent of the total $15.4 billion net change in outstanding home mortgage debt.

The

mortgage trusts put an estimated $1.2 billion into multi-family and commercial mortgages, accounting, therefore, for about 12 per cent of the 1969 net change in such debt outstanding./

The REITs have

undoubtedly served builders by providing a broad-based source of supply for loans on apartments and commercial buildings, especially construction and development loans, in a period when commercial banks and other traditional mortgage lenders were unable to meet all the demand. The mortgage investment trust industry has grown very rapidly and attracted a good deal of investor attention as well as a number of prestigious entrants, but the future is not without some potential problems.

Many smaller REITs, particularly the equity trusts, are not

sufficiently diversified, and an economic slowdown, even if it were only regional, could mean a serious drop in earnings.

Management

problems may also plague some of the smaller, weaker members of the industry, and a failure by any REIT would probably slow down future

1/ The $1.2 billion, of which $0.8 billion was in multi-family mortgages, includes retirements and is, therefore, a maximum estimate of REITs' contribution to the net change in mortgage debt.

Aexpansion of these funds.

5

There is a potential conflict of interest,

too, between the trusts and the advisory services which select and manage their real estate investments.

Regulation of REITs is, at

present minimal, being confined almost entirely to the issuance of

securities.

As with all financial intermediaries, the earnings of

REITs depend on the differential between the cost at which they can borrow and the returns on their investments.

If there should be a

decline in the current high yields on construction and development loans or if the market should become saturated as competition increases, some of them could face difficulties. For the balance of this year, the REITs will probably continue to be an important factor in the equity market, both in terms of new issues and in secondary market activity,

Over time,

the larger trusts may also be fairly frequent visitors to the bond market.

A number of large financial institutions are now setting up

REITs, which have the ability to tap the capital markets directly for mortgage money as a competitive move.

It may well be that in the

1970's the industry will be dominated by the trusts set up by large banks and insurance companies, which will presumably have the management expertise to succeed in this field.

At the same time, the trusts

will enable these institutions to channel funds into certain areas of the mortgage market from investors who might not be attracted to ordinary thrift investments.

SUPPLEMENTAL APPENDIX B: TREASURY FINANCING IN THE SECOND HALF OF CALENDAR 1970* The volume of Treasury financing in the second half of

calendar 1970 is expected to be large.

Since market participants

generally view this prospective financing as a major factor in the nearterm outlook for interest rates, it is useful to consider more explicitly what its dimensions are likely to be and how they compare with borrowing totals in the July-December periods of other recent years. Relative dimensions of prospective Treasury borrowing Even in years when there has been a sizable budget surplus, the Treasury has usually been a net borrower in the second half of the calendar year mainly due to the seasonal pattern in tax receipts.

This

year seasonal borrowing needs will be augmented by the effects of sluggish economic activity on tax receipts as well as by the recently enacted tax reform and relief measures which include the expiration of the surtax in July. Table 1 compares staff estimates of Treasury borrowing requirements in the third and fourth quarters of this year with actual borrowing totals in recent years.

As column 1 of the table shows, net

cash borrowing for the second half of this year is estimated to total about $12.5 billion, more than $4 billion larger than in the same period a year ago but $6 billion smaller than in the second half of 1967, which was part of the record deficit year of fiscal 1968.-/

In the third

1/ The fiscal 1968 budget deficit of $25.2 billion compares with a $7.3 billion deficit for fiscal 1971, now projected by the staff. * Prepared by William Beeman, Government Finance Section, Division of Research and Statistics.

B-

2

Table 1 RECENT PAST AND PROJECTED TREASURY FINANCING IN SECOND HALF OF CALENDAR YEARS (Billions of dollars)

t Calendar year

g borr borrowin from pu mi / public -

(1) 1967 - Q3 Q4

Memo: Net borrowing by Governmentsponsored agencies 2/

(2)

Total columns (1)+(2)

Refundin maturing coupon issues sues up publicly-held

(3)

(4)

Gross cash offerings of marketable Treasury issues ./

(5)

8.5 10.4

--- 8,5 10.4

3.6 2.6

18.9

--

18.9

6.2

17.1

7.7 3.4

.0 .5

7.7 3.9

3.6 4.7

8.1 5.3

11.1

.5

11.6

8.3

13.4

3.2 5.1

2.7 2.9

5.9 8.0

3.2 5.9

5.6 8.3

HII

8.3

5.6

13.9

9.2

13.9

1970 - Q3e Q4e

5.9 6.7

1.9 1.1

7.8 7.8

5.6 6.0

8.8 7.6

12.6

3.0

15.6

11.6

16.4

HII 1968 - Q3 Q4 HII 1969 - Q3 Q4

HIIe

7.9 9.2

e- Estimated by Board staff. 1/ New money raised from public. 2/ Prior to 1968 net borrowing by all government-sponsored agencies was included in the published figure on net borrowing from the public, shown in column (1); starting in 1968 with the shift over to the unified budget concept, activities of some Federal agencies began to be excluded from the budget and were taken out of the net borrowing total. In 1968 the borrowing of the Federal Home Loan Bank Board and the Farm Credit Administration were excluded from net borrowing by the Treasury and that of FNMA was excluded in the fourth quarter of 1968. The amount of net borrowing by these agencies in the periods following their exclusion from the unified Budget is shown in column (2). 3/ Marketable securities issued by the Treasury for cash other than roll-overs of Treasury bills in weekly and monthly auctions, and roll-overs of coupon issues in cash refinancings.

B-

3

quarter alone, net cash borrowing--at an estimated $6.0 billion--is nearly double that for the third quarter a year ago, though significantly smaller than in the same quarters of 1967 and 1968.

However,

when comparing projected net cash needs for the current year with figures for years prior to 1969, it is necessary to include borrowing by Federally-sponsored agencies, since the net borrowing of these agencies were incorporated in the cash budget totals and in the net

borrowing series of prior years.

The net borrowing of these agencies

for the periods after their exclusion from the budget are shown in column (2) of Table 1.

After allowance is made for agency borrowing,

Federal financing needs in the second half of calendar- 1970 are only about $3.3 billion less than in 1967 but $4.0 billion more than in 1968, as shown in column (3) of Table 1.

Because agency borrowing was

unusually high in 1969, total net borrowing by the Treasury and the agencies in the second half of this year is expected to be about $2.0 billion larger than in 1967. Participants in financial markets tend to focus more on the dimensions of the Treasury's expected gross cash financing than on its net borrowing.

In addition to net new money needs, these gross totals

include borrowing required to finance cash debt repayment arising from such things as attrition in refundings, and maturities of tax bills but they exclude turnover of bills and coupon issues.

On this basis,

as shown in column (5) of the table, the estimated nearly $16.5 billion of second half 1970 borrowing looks more formidable relative to earlier years.

This is partly attributable to the rather large volume of cash

B-

4

redemptions projected for the August and November refinancings on the assumption that pressures on securities markets, while possibly moderating somewhat as the year progresses, will, nevertheless, remain significant.

In addition, $1.8 billion of maturing Treasury tax bills must be

refinanced in September this year, whereas in the other years shown (except 1969) there were no maturing tax bills in the second half of the year. In addition, the volume of publicly-held coupon issues scheduled to mature in August and November (shown in column 4 of the table) amounts to $11.6 billion, and is significantly larger than in any other recent year.

The steady growth in refinancing volume from

1967 through 1970 reflects the persistent shortening in overall maturity of the debt that has occurred as a result of generally tight credit conditions and interest limitations on debt lengthening imposed by the 4-1/4 per cent interest rate ceiling on Treasury bonds. Nature and timing of financings Table 2 makes more explicit the expected timing of Treasury gross debt offerings during the July-December period. concentration occurs in July and August.

The heaviest

It is assumed that a part of

the gross cash need will be met by continuing the $100 million increments to weekly bill auctions now under way through the rest of the bill cycle--i.e., through the first three weeks of August.

Altogether

possibly $7 billion of the gross cash requirement for July and August may be met through regular and tax bill financings.

This would leave

nearly $2 billion of cash need and around $4.5 billion of refinancing need (after allowance for attrition) to be met in the coupon market.

B-5

Table 2 ESTIMATE OF SELECTED TREASURY FINANCING ACTIVITIES IN SECOND HALF OF CALENDAR 1970 (Billions of dollars)

July Additions to weekly bill auction 1/ Unspecified gross cash offering 1/ Maturing publiclyheld coupon issues 1/ Staff estimate.

August

September

October

November

3.7

.5

.3

4.3

3.7

--

3.9

--

5.6

*-

6.0

December