Treasury Yields: The Movie

This video shows in detail what happened in the 2008 financial crisis.

What is show is the yield on different maturities of U.S. Treasury debt, against their maturity length.

A couple of points stand out:

• Policy effects are mostly on short-term rates (the left side of the graph).
• The long-run yield is fairly constant at just over 4% (the right side of the graph)
• What happened with Bernanke-Paulson policy in 2008 was that they were pulling down short-term rates so hard and so fast that their link to medium-term rates was broken.
• There never is much of a link of short-term rates to long-term ones, so there way nothing there to break.
• Given the dependence of most firms on medium-term debt, it should be no surprise to anyone that when the benchmark of medium-term government debt lost its anchor, that commercial markets went nippy.

Via James Hamilton at Econbrowser who notes that the source authors (Gurkaynak and Wright) notice a breakdown in arbitrage: dots on the graph should not separate vertically. This is what is going on in my last bullet point.