Dollars and Jens
Monday, August 20, 2007
short-term treasury turmoil
At one point during the day, a dispatch from Bloomberg read
The yield on the three-month Treasury bill fell 1.23 percentage points today to 2.53 percent as of 12:26 p.m. in New York. It's the biggest drop since at least Oct. 20, 1987, when it fell 85 basis points on the day the stock market crashed.
Looks like the research boys were doing the best they could to keep up with the markets.

A later report indicated
The yield on the three-month Treasury bill fell about 1.21 percentage point to 2.55 percent as of 12:47 p.m. in New York. It's the biggest drop since at least 1983, when Bloomberg began tracking the data. The move eclipses that on Oct. 20, 1987, when the yield fell 85 basis points, or 0.85 percentage point, on the day the stock market crashed, and the decline of 39 basis points on Sept. 13, 2001, the day the Treasury market reopened after the attacks. The yield has fallen from 4.69 percent on Aug. 13.
It ultimately bounced about half-way back before the end of the day.

Most of the data, even commercial paper, seems to be mostly back to normal; it fact, were one prone to sanguinity, one could easily suppose that the aggregate data are consistent with the theory that the market is mostly where it was two weeks ago with the exception of a small but determinedly risk-averse group of market participants pouring into short-term treasuries; one can almost see injections of liquidity by the fed being routed rapidly through these people to short-term treasuries, leaving the rest of the financial world largely unaffected. (There are, I believe, some micro-data that don't gibe quite as glibly with this, but it may be a large part of the story.)

Update: Oh, I also wanted to mention that the 2 year swap spread has now climbed above 73bp. That fits into my narrative insofar as the two-year treasury yield is pulled by forces acting on short-term treasury bills; the two-year swaps are in line with the bulk of the financial markets, and the spread is just a function of the paranoid buying up two-year notes (or things that are being arbitraged against two-year notes).

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