The document describes Operation Twist, a monetary policy where the Federal Reserve sells short-term Treasury securities and uses the proceeds to buy long-term bonds. This is intended to lower long-term interest rates and encourage more borrowing and spending. It differs from quantitative easing in that it does not expand the Fed's balance sheet. The goal is to stimulate the economy by making long-term loans and investments more affordable.

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Brief on Operation Twist
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Sell shorter term term Treasury
Securities.
Buy long term bonds from the cash
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generated
Extend the average maturity Fed
portfolio
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Shorter term securities interest rate will
fall and become costlier
Longer term securities become cheaper
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as interest inc on inc in demand
Make cheaper long term loans etc hence
increases investment for longer tenor.
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Goal
By buying longer-term Treasurys, the Fed intends to lower
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longer-term rates and encourage more borrowing and
spending. Lower rates could also lead more investors to shift
money into stocks because they'll receive less return on their
investment in Treasury bonds. And by reinvesting proceeds
into new mortgage-backed securities, the Fed supports the
housing market. Without those purchases, banks might issue
fewer mortgages.
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It is called operation Twist :If you visualize a linear upward sloping yield curve, this
monetary action effectively "twists" the ends of the yield curve, hence the name
Operation Twist.
It is a form of monetary easing, but unlike quantitative easing, it does not expand the
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Fed's balance sheet, making it a less aggressive form of easing.
Basically the Fed can’t reduce short-term interest rates any further—they’re already at
zero. So they want to reduce long-term interest rates instead. They do this by buying
long-term bonds. When you buy more of something, you raise the price.
With QE1 and QE2, the Fed effectively just printed the money. (They “expanded their
balanced sheet.”) Instead, they are selling short-term bonds, and using the proceeds
to buy the long-term bonds.
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Initiatives : WealthHandHolding
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