In
response to softening US economic data, the US Federal Reserve
announced on June 20 that it would extend its Operation Twist program
until the end of 2012.
First unveiled a year ago, Operation Twist aims to reduce long-term US interest rates through the purchase of long-dated US government bonds. Specifically, as part of its first and second rounds of quantitative easing dubbed QE and QE2, the central bank’s balance sheet expanded to more than $2.87 trillion worth of bonds (see chart below).
Source: Bloomberg
In Operation Twist, the size of the Fed’s balance sheet does not expand. Instead, the central bank sells off short-term Treasuries and buys bonds with maturities 6 to 30 years into the future. The Fed’s buying of long-dated bonds pushes down yields, which helps reduce borrowing rates on lending products such as mortgages.
By the end of 2012, the Fed plans to sell or redeem an additional $267 billion in US Treasury securities with maturity of less than 3 years and re-invest that cash, roughly two-thirds into bonds with maturity of 6 to 10 years and the balance in bonds with maturities from 20 to 30 years in the future. To justify this action, the Fed noted in its June 20 Federal Open Market Committee statement:
Read more: http://econintersect.com/b2evolution/blog3.php/2012/06/28/no-bull-there-s-more-downside-ahead
First unveiled a year ago, Operation Twist aims to reduce long-term US interest rates through the purchase of long-dated US government bonds. Specifically, as part of its first and second rounds of quantitative easing dubbed QE and QE2, the central bank’s balance sheet expanded to more than $2.87 trillion worth of bonds (see chart below).
Follow up:
In Operation Twist, the size of the Fed’s balance sheet does not expand. Instead, the central bank sells off short-term Treasuries and buys bonds with maturities 6 to 30 years into the future. The Fed’s buying of long-dated bonds pushes down yields, which helps reduce borrowing rates on lending products such as mortgages.
By the end of 2012, the Fed plans to sell or redeem an additional $267 billion in US Treasury securities with maturity of less than 3 years and re-invest that cash, roughly two-thirds into bonds with maturity of 6 to 10 years and the balance in bonds with maturities from 20 to 30 years in the future. To justify this action, the Fed noted in its June 20 Federal Open Market Committee statement:
…growth in employment has slowed in recent months, and the unemployment rate remains elevated. Business fixed investment has continued to advance. Household spending appears to be rising at a somewhat slower pace than earlier in the year. Despite some signs of improvement, the housing sector remains depressed.
Read more: http://econintersect.com/b2evolution/blog3.php/2012/06/28/no-bull-there-s-more-downside-ahead
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