Interest rates have come off their highs in recent days

Part of a cycle … I wouldn’t bail out……

Tom Foley - Chief executive IIB Homeloans
Sunday Independent - July 29 2007

“BROADLY speaking the issue is from the US with the sub prime market in particular causing issues around the markets.

The view from the US is that largely it is contained but that it’ll take time to flush through the system. Ireland is to a large extent following the US.

It’s probably part of a cycle. I wouldn’t be bailing out. We’re going through a cycle with the credit market and liquidity. The hope would be that it will settle down.

Interest rates have come off their highs in recent days, which may help the marketsâ€

Yes, Government bond rates have been falling but this has mainly been on the back of turmoil in the credit markets.
The spread over these rates that most mortgages will holders will have to pay in the future has been increasing significantly.

ECB Interest rates still heading upwards…the US Federal reserve will likely try to cut later this year provided the dollar does not keep falling relative to other currencies.

**Dollar Rebounds From Record Low Versus Euro on Risk Aversion
**

These figures will strengthen Trichet’s hand regarding interest rates.

How so?

LFY

Yeah, there is a general flight to quality going on - RMBS/CMBS spreads spiking, corporate spreads up (the on the run 5y crossover broke 500 earlier from 188 at the start of june) and swap spreads up to a five year high (looking at 5y euro spreads but I’m sure it is across the curve).

Really? Makes sense but do you have any examples of this in practise? Is it just the Irish market or Europe-wide? Would be interested in seeing what is going on at the retail end of things.

LFY

It was argued in some quarters that too high a euro exchange rate could hurt euro region exports especially to the USA and therefore a pause in interest rate rises and/or a reduction might be warranted if the dollar collapse continued.The most vocal in this regard has been the new French president Nicolas Sarcozy.

It’s almost like we have a mirror image of what was happening in late '01/early '02. Then we had a weak euro which confounded people in it’s weakness against the dollar. Rates were falling then, but eurozone rates lagged the Fed on the way down which again seamed to contradict the low euro against the dollar (below 90 cents if I recall).

Now I believe eurozone rates are lagging the fed on the way up, so we’ve a bit to go yet from the ecb. it’ll be interesting to see how Sarkozy introduces a ‘thatcherite’ moneterist agenda, without having leverage on central bank policy. I’m not sure how Maggie would have got on if the BOE had independence back in 1979.

report on bloomberg that Sarkozy is full of horsemanure, that the Eurotrading partners have not seen a rise in the price of the euro. The dllar is falling because the fed wants to reduce the debt that is paid to the foreign investors.

Green Bear wrote:

I still don’t think the Fed. will cut as inflation could still be a threat and the labour market still looks good:

**Market Volatility Won’t Affect Fed’s Decision: **

What? How would a weakening dollar reduce the debt that is paid to foreign investors? If the US govt pays 100 USD to foreign investors it hardly matters to them what the external value of that 100 USD is.

And the US government does not want to discourage the amount of debt held by foreigners, if that is what you were trying to say. (Populist posturing by Hillary aside.)

LFY

Gatelodge, completely agree. The market still thinks that Greenspan is in charge, sometimes.

While we’re knocking Bloomie columnists about, Caroline Baum is very good on the Fed and monetary policy:
bloomberg.com/apps/news?pid= … mnist_baum

But Austin ‘Done and Dusted’ Hughes said that we are already at the peak ,that rates will come down from here
bloomberg.com/apps/news?pid=20601085&sid=a4eseFcPSL8M&refer=europe