Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: the Treasury market, ESG, and vaccine expectations.
In March, when the Covid crisis entered full swing, the deepest, most liquid securities market in the world — that for U.S. Treasuries — froze up. The “dash for cash” catalyzed by the Covid sell-off led banks and asset managers to unload their Treasury holdings just as demand dried up. Yields rose sharply until the Federal Reserve intervened with a pledge to make as many purchases of Treasuries as necessary to stabilize the market.
U.S. government bonds are essentially a form of currency. Financial institutions mark Treasury bills as “cash equivalents” on their balance sheets. When they need cash, they either post Treasuries as collateral for short-term funding or else sell them on the open market. Protracted illiquidity in the Treasury market would cut off