Thursday, March 20, 2008

We ain't been here before 

As I'm getting ready for my masters' level macro class, I read this.
U.S. Treasury three-month bill rates dropped to the lowest since at least 1954 as finance company CIT Group Inc. drew on $7.3 billion in credit lines after being shut out of short-term funding markets.

Investors pushed the rate as low as 0.387 percent as the loss of investor confidence in credit markets deepened. Surging demand for Treasuries is causing failures to deliver or receive the securities to climb to an almost four-year high in the $6.3 trillion a day repurchase, or repo, market.

``The market's insane,'' said David Glocke, who manages $75 billion of Treasuries at Vanguard Group Inc. in Valley Forge, Pennsylvania. He sold bills maturing in one week at a 0.05 percent yield. ``The biggest thing overall is the flight to quality.''

Three-month bill rates ended the day 1 basis point higher at 0.57 percent as of 2:57 p.m. in New York. They had tumbled 32 basis points yesterday. Rates on three-month bills were as high as 4.29 percent as recently as Oct. 15.

Krugman says liquidity trap.