End The Madness: Terminate Twist

WASHINGTON — With a nervous eye on the “fiscal cliff,” the Federal Reserve is expected this week to announce a new bond-buying plan to support the U.S. economy. The goal would be to further reduce long-term interest rates and encourage borrowing by companies and individuals. If it succeeds, the Fed might at least soften the blow from tax increases and spending cuts that will kick in in January if Congress can’t reach a budget deal. But the Fed’s actions wouldn’t rescue the economy.

I confess that I am having a hard time understanding Marty Feldstein's latest column… To paraphrase, the argument as I see it seems to go as follows: "Banks and investors are currently paying much more than the fundamental value for long-term treasury bonds."

The Federal Reserve is set to announce a fresh round of Treasury bond purchases when it meets next week, avoiding monetary policy tightening to maintain support for the weak U.S. economy amid uncertainty over the looming year-end “fiscal cliff.” Many economists think the U.S. central bank will announce monthly bond purchases of $45 billion after its policy gathering on Dec. 11-12, signaling it will continue to pump money into the U.S. economy du r ing 2013 in a bid to bring down unemployment.

PIMCO founder and co-CIO Bill Gross spoke with Bloomberg Television's Margaret Brennan today, telling Bloomberg TV that the Fed will likely shift focus to mortgage securities to keep borrowing rates low when Operation Twist ends in June.

The Federal Reserve announced on Wednesday ([1], [2]) that it will sell some of its shorter-term assets in order to buy more longer-term assets. Here I assess some of the possible consequences of this move.

By Qineqt: Operation Twist Extension In a recent article we analyzed U.S Banks expected earnings for the second quarter of 2012. This is a follow up article to explain how the extension of "operation twist" will impact U.S financials.

By Tim Shaw:Back in September of 2011 the Fed chairman Ben Bernanke announced Operation Twist, which I wrote about here. Wednesday the Fed announced a continuation of the same program and that interest rates will remain low through 2014. The continuation program of selling shorter term treasuries and buying longer dated treasuries are an attempt to keep bond yields low.

By Steve Hassett:Much of the discussion around Treasury Bonds being in a bubble suggest the cause is mostly around flight to quality, where investors seeking to avoid other sovereign debt risk seek safety in the U.S., along with “Operation Twist” where the Federal Reserve is selling short term bonds and buying long-term bonds to drive down long rates. These explain part of it, but there is a more fundamental reason – expectations for low short-term interest rates to persist for several years.