LARGELY BECAUSE OF international pressures on the dollar and the resulting large gold losses, the Federal Reserve could not risk permitting short-term yields to decline in 1961. Further credit-easing measures would almost certainly have accelerated the transfer of short-term capital to other international money markets where interest rates were higher. With expectations generally based on a floor of something like 21 per cent for 3-month bills and about 3 per cent for 1-year money in 1961, most investors displayed a cautious attitude toward lengthening portfolio maturities to pick up yield. With a living wage on short-term securities and given the very modest yield improvement available for maturity extension, strong buying pressure on the intermediateand long-term sectors of the U.S. Treasury market failed to develop. The year 1961, therefore, was characterized by exceptional stability for short-term yields, typified by the narrow range of from 2j per cent to 21 per cent on 3-month Treasury bills that has prevailed since mid-1960. Yields on intermediateand longer-term Treasury securities likewise showed a high resistance to dramatic moves either up or down in 1961. Yields on Treasury bills were kept reasonably competitive with yields available abroad (on a covered basis), during this year of relatively easy money, largely by reason of the fact that the discount rate was maintained at 3 per cent and that the Treasury financed its huge cash deficit in the short-term market. The 3 per cent discount rate meant that federal funds could (and did) frequently trade up to or near that level, thus introducing into bank investment calculations a hesitation to overinvest in bills at a yield -too far below that anchor rate. Heavy Treasury financing in the short-term area also kept steady upward pressure on yields. There has been a tendency in certain quarters to attribute the Federal Reserve System's success in keeping yields in our market at a competitive level to the change in open-market practices in February, 1961. This conclusion, I believe, misses the point of what