The Federal Reserve's rescue has failed (Ambrose Evans-Pritchard)

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Ambrose Evans-Pritchard -- Telegraph

-- The verdict is in. The Fed's emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed.

Yields on two-year U.S. Treasuries plummeted to 1.63 percent Friday in a flight to safety, foretelling financial winter.

The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the U.S. credit universe.

It is hard to imagine a more plain-vanilla outfit than the Port Authority of New York and New Jersey, which manages bridges, bus terminals, and airports. The authority is a public body, backed by the two states. Yet it had to pay 20 percent rates in February after the near closure of the $330 billion (£166m) "term-auction" market.

It had originally expected to pay 4.3 percent, but that was aeons ago in financial time.

"I never thought I would see anything like this in my life," said James Steele, an HSBC economist in New York.