Interest Rate Roundup

Wednesday, October 22, 2008

Forint follies ... Argentine angst ... and more on mortgages

Every day, it seems like events in some far corner of the world come back to haunt the markets. Many of us here in the U.S. may not pay attention to these events, but we should. I talked about Iceland a while back, and how that country's currency, stock, and banking crises would have repercussions here in the U.S. And boy did they ever. Now, we have fresh crises rearing their heads in both Hungary and Argentina.

In Hungary, the currency (called the forint) has been plunging for weeks on end as global investors pare risk and withdraw funds from higher-risk emerging markets. The forint is trading at 214 against the dollar, a huge decline from the 143 level back in July (In other words, 1 U.S. dollar buys many more forints than it did a few months ago). The Magyar Nemzeti Bank, Hungary's central bank, has responded by jacking up the nation's benchmark rate to 11.5% -- an increase of three percentage points. Higher rates are designed to stem the flight of capital.

Meanwhile, in Argentina, the country is planning to seize $29 billion of private pension funds. This caused bond yields in the country to surge, and the Merval stock index to plunge 11% (It is down more than 51% on the year). The government last raided pension fund investments to service its debt in 2001 -- and then defaulted in a move that sent shockwaves through the global capital markets.

While some credit indicators are improving (LIBOR, swap rates, and so on), these events are reminders that we're still in a crisis atmosphere worldwide. Money is fleeing higher-risk economies and flowing into the dollar as a result.

One last minor thing: If you didn't see the latest Mortgage Bankers Association figures on home loan applications, you should check them out. The MBA's combined index (refis + purchases) plunged 17% to 408.1 in the week of October 17, the lowest level since December 2000. The purchase index came in at 279.3, the worst since October 2001.

3 Comments:

  • By Blogger NMMM.NU, at October 22, 2008 at 8:55 AM  

  • Mike-

    Is it possible that in the US you could see any of the following:

    1) The government 'borrowing' retirement assets for liquidity purposes.

    2) The government creating restrictions on retirement fund withdrawals or cashouts to try to 'put a floor' under the markets.

    3) Some other type of government 'use' of retirement funds?

    Brian

    By Anonymous Anonymous, at October 22, 2008 at 2:02 PM  

  • I think they did it already, but is not official yet?

    I am from Bulgaria - same story here - fund is almost empty, but this is as not official as in Argentina.

    Mike, looking forward to hear your oppinion.

    By Blogger NMMM.NU, at October 24, 2008 at 4:56 AM  

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