Treasury yields are screaming lower. And although the stock market made a significant correction yesterday, the yield curve is still showing signs of extreme credit dislocations.



Curve Watcher’s Anonymous is noting something unusual today. Let's take a look.







click on chart for sharper image



Note that treasuries are staging a big rally on the front end and back end while selling off slightly in the middle. Somewhere there is a big duration mismatch. Alternatively there is a mad scramble by players wanting to get in on the deflation trade.



The second thing noteworthy is yields on T-Bills. Prior attempts at this level have not held, but should we close here (and it is by no means certain), this will be the lowest close ever at the short end of the curve.



Note: In the brief time that it took to finish the post, yields are now headed lower across the board but the very long end and very short end are still outperforming the middle of the curve. 3-month T-Bill yields are at .61% and falling.



For more implications on excessively low short term yields please see Negative Yields On Treasury Funds.



This could be premature, but efforts to increase liquidity seem to be failing already. Let's recap actions to date.



Recap Of Fed Sponsored Facilities



The TAF (Term Auction Facility) failed to restore liquidity.

The TSLF (Term Securities Lending Facility) failed to restore liquidity. See The Fed's Swap Meet for more on the TSLF.

The PDCF (Primary Dealer Credit Facility) will be the next "facility" to fail. See Fed Fails To Halt Debt Meltdown for more on the PDCF.



Treasuries Are Safer Than Cash

Deflationists don't generally believe in buying gold, because they believe cash is king

How Cash Can Lose In Deflation

Cash may be worth less in term of other currencies.

Cash may be worth less in terms of gold.

Cash (above the FDIC limit) can be defaulted on.



eventually

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