Sept. 29 (Bloomberg) -- Rates in the $7 trillion-a-day market for borrowing and lending securities show that the logjam in credit markets is approaching the level seen after the March collapse of Bear Stearns Cos.

Securities that can be borrowed at interest rates close to the Federal Reserve's target rate for overnight loans between banks are called general collateral. Notes and bonds that are in the highest demand in the repurchase, or repo, agreement market are called ``special'' by traders because rates on loans secured by these securities are lower than the general collateral rate.

The CHART OF THE DAY shows the spread of the general collateral repo rate below the Fed's target rate of 2 percent. The gap, which averaged 0.06 percentage point in the 10 years prior to August 2007, when subprime mortgage losses spread, is now 1.25 percentage points. A wider spread indicates a greater scarcity of Treasuries. The spread reached 2.05 percentage points on March 19 after the central bank engineered the takeover of Bear Stearns by JPMorgan Chase & Co.

``Clearly we are in a high-risk premium mode, just as we were in March,'' said Piyush Goyal, an interest-rate derivatives strategist at Barclays Capital Inc. in New York. ``Lack of investor confidence, exacerbated by quarter-end concerns, has tilted the repo markets in favor of the collateral owners.''

Some specific Treasuries have been in such demand that traders were willing to lend cash for no interest overnight to obtain the securities as collateral. Other trades have been left uncompleted, or failed.

Failures to deliver or receive Treasuries amongst dealers rose to $578 billion in the week ended Sept. 17, from $54.2 billion the prior period, data on the Federal Reserve Bank of New York's Web site show. Treasury fails reached $2.3 trillion in the week ended April 2, the highest since May 2004, and averaged $176.7 billion a week since July 1990.

To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net

Last Updated: September 29, 2008 15:30 EDT