Top Takes From RealMoney

2. Mortgage Rates Fall

By Marc Chandler
2:01 p.m. EDT

The average 30-year fixed rate mortgage fell 10 basis points to 5.32%. Fed officials may find some comfort in this development, but it is unlikely to silence its critics. Some believe the Fed needs to buy more long-term assets, especially since it has taken steps that slow purchases and did not expand long-term asset purchases at the June meeting. With more than $100 billion left of the $300 billion commitment, the Fed does not have to make a decision about its future intentions at the August FOMC meeting given the current pace.

This demonstrates it is not targeting a particular rate. The dollar is in trouble either way. The relationship between the dollar and interest rates is not linear but cyclical. Interest rate differentials will continue to move in the U.S.'s favor and we expect that this will give the dollar better traction. It will, of course, require that the current relationship by which the dollar rallies on bad news to break down more convincingly.

No positions.

3. Seven Percent Fed Funds?

By Tom Graff
12:50 p.m. EDT

I saw that there was a trade in the fed funds market at 7% on June 30, but I had dismissed it as just an anomaly. But now some traders are talking about a bank being in trouble.

Bear in mind that the fed funds is a manipulated market, but isn't a controlled market. Thus, if someone were desperate enough for an overnight loan, the market would find a clearing rate.

It doesn't have to be a big bank. The Fed doesn't report size of fed funds transactions. Nor does it report who the lender or borrower was. Either way, its worth noting that through the discount window or TAF, banks should have access to capital at rates well below 1%. So it's extremely curious that any bank would agree to borrow at 7%. Or, for that matter, that another bank would demand 7% to lend.

No positions.