its debt obligations. As a result, bond prices fell across-the-board in markets around the world. In the ensuing weeks, reports surfaced that a very large hedge fund, Long-Term Capital Management, had sustained multi- billion dollar losses. On September 23, the hedge fund received an infu- sion of $3.65 billion in capital from a consortium of investment banks. The rescue was brokered by the Federal Reserve. During this time, inves- tors fled emerging markets equity and debt, liquidity in corporate bonds dried up, and money poured into Treasuries. The spread between 3- month LIBOR and 3-month bills was 132 basis points on October 20, 1998. The spread returned to more normal levels as the Federal Reserve cut the Federal Funds rate three times in the following two months to avert a credit crunch. The final spike in the data occurs in the fall (October/November) of 1999. Although the macroeconomic climate was relatively settled during this time, uncertainty due to the Y2K calendar conversion engendered some portfolio rebalancing and a flight to quality. Once these concerns abated, spreads quickly returned to more normal levels. Another pattern evident in these data is the downward trend in the spread between 3-month LIBOR and 3-month Treasury bills. To see this, we computed summary statistics for each calendar year: mean, standard   15Jeremy J. Siegel, Stocks for the Long Run (New York, NY: McGraw-Hill, 1998).     deviation, minimum and maximum. These results are presented in Exhibit 3.8. Two trends are evident: (1) the mean spreads fell over the 1987-1999 period and (2) except for the uptick in volatility in 1998-1999, volatility trends downward as well.16The explanation is simple. Over this period, LIBOR became the benchmark global short-term interest rate. The major- ity of funding for financial institutions is LIBOR-based. As this trend con- tinues, spreads should continue to remain at these lower levels.       RIDING THE YIELD CURVE   Panel a of Exhibit 3.9 presents two Treasury bill yield curves from Bloombergs C5 screen from the Governments page captured on March 13, 2002. The top graph is constructed using yields from bills maturing from 3 to 6 months. Correspondingly, the bottom graph is constructed using the yields of bills maturing from zero to 6 months. Each bill issue presented in the two graphs is identified with a -0- (on-the-run bill), X (off-the-run bill), or a W (when-issued bill). Panel b of Exhibit 3.9 presents the data Bloomberg used to construct these two bill yield curves.