Fed's numerous attempts to bolster liquidity seem to have gained little results. Yields on T-Bills have fallen so low that LIBOR can no longer match. Therefore, the famous TED spread has since settled at around 200 basis points. The spread between Fed Funds rate and the T-bills rate, which according to Krugman, tend to trend in the same direction has also stayed at a spread of around 200 basis points. Have we hit zero-bound? The next few weeks will be crucial as banks in US swap mortgage-related collaterals for US T-Bills. We may be in trouble if liquidity situation does not improve then.
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