#48 Daily Financial News Round Up - Dec 18,2021
What news caught my attention?
Citigroup Inc. teamed up with a commodities trader and a private equity firm to pitch an investment vehicle known as Coal to Zero. The fund’s brochure states that the fund’s objectives are to buy coal mines in the U.S., Australia and South Africa to run them with the ultimate goal to shut them down by 2040. In the current climate-change friendly environment, investors did not take well to this pitch leading to Citigroup and its band abandoning this fund.
Countries around the world are raising their interest rates to curb inflation. Inflation is a concern around the world, not just in the U.S. at the moment.
The recent Fed announcements of interest rate hikes did not move treasury yields as expected. One potential reason is what changed in how banks used their cash? Since consumers borrowed less and even paid their debts, banks invested their cash in treasury securities, flooding that market with cash. This investment from banks into the treasury market muted any effect the Fed announcement could have had.
My Takeaways:
Low-interest rate environment and stimulus checks helped consumers pay down their debts. This consumer action led to banks having more cash on their balance sheet than usual. Banks resorted to alternate uses of this cash, such as investing in the treasury markets, which has altered the relationship between the Fed short-term fund rate and the treasury yield curve.
The idea of buying to shut down coal mines sounds too good to be true, and the investors seem to be in the right by being cynical about this proposition.