The Capital Note: Treasuries & ESG

Welcome to the Capital Note, a newsletter about business, finance and economics. On the menu today: the Treasury market, ESG, and vaccine expectations.

Treasuries
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

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The Capital Note: SPACs & Office Space

Welcome to the Capital Note, a newsletter (coming soon) about finance and economics. On the menu today: SPACs, Office Space, and Antique Bonds, plus some links from around the Web.

SPACs
Special purpose acquisition companies (SPACs) are all the rage. 51 SPAC offerings have been completed in 2020 — a 145 percent increase from the same period in 2019. Electric-truck company Nikola and spaceflight company Virgin Galactic both went public this year via SPACs, and Bill Ackman — enjoying the limelight after a stunningly profitable short trade early in the COVID crisis — has launched his own “unicorn mating dance,” his term for the process of finding a large tech company to take public with $4 billion in newly raised funds.

A SPAC represents a “blank check” for a sponsor, who raises capital in the public equity markets and uses it to merge with a private company.

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The Capital Note: Gold, Swedes & Guevara

Welcome to the Capital Note, a newsletter (coming soon) about finance and economics. On the menu today: The New Gold Rush, Sweden’s Corporate Health, the Return of Target 2, plus some stories from around the Web and an introduction to Che Guevara, central banker.

The New Gold Rush
Gold reached a record high of $2,000 an ounce on Monday. With real yields on Treasuries at record lows, investors are turning to precious metals as an alternative store of value. Meanwhile, the trade-weighted dollar index has fallen 5 percent since its May high. Some analysts have gone so far as to forecast the decline of the dollar as the global-reserve currency.

Data: London Bullion Market Association <br>Graph: Daniel Tenreiro
Data: London Bullion Market Association
Graph: Daniel Tenreiro

Oh, the vagaries of markets. In March, economists were warning of a dollar shortage. A global dash for cash early in the crisis brought the dollar index up 8

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