Thanks, But I am still puzzled. If 91-day is used as a collateral, FFR is a secured loan, right? The Treasury rate is set by market while FFR is a fiat rate. Why should they match? I can think of one reason – some sort of interest rate arbitrage. Borrowing at FFR to buy higher yielding treasuries. But if FFR is higher than treasury, what do you do? This is not a hypothetical question. What is happening in the treasuries now is foreign central banks are liquidating their holdings to lower their $ exposure. They are attracted by higher price of treasuries driven by all the investments that are avoiding private debt paper (CDO/CMO etc.,). So, in a round about way, investors are replacing foreign central banks as treasury holders. This is causing a drought in private sector debt. Goodbye cheap mortgages/credit card/auto loans etc.,
