We’ve done it before but with the meeting tomorrow, here’s a review on ‘What is Operation Twist’.
It’s fairly simple. In QE1 and 2, the Fed bought about $2.9 trillion worth of Treasuries and mortgage-backed securities. Some of these assets mature next week; some mature 30 years from now.
The aim of the Operation Twist is to change the composition of the portfolio toward more long-term assets and few short-term assets.
They could either a) wait until short-term securities mature and re-invest the proceeds into long-term securities or b) speed up the process by selling short-term securities they own and using the proceeds to buy long-term securities.
The aim is to lower borrowing costs. The Fed has been successful in bringing borrowing for two years or less to nearly zero. 10-year borrowing costs are near a 50-year low but the Fed wants to lower them further.
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