The Fed launches Operation Twist to abate significant downside risks to the US outlook | Eurobank
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The Fed launches Operation Twist to abate significant downside risks to the US outlook

• At its September meeting, the FOMC announced a Maturity Extension Program, selling $400bn of Treasuries with maturities below 3 years, and reinvest the proceeds in maturities of 6-30 years over the next nine months.
• Principal payments from holdings of agency debt and agency MBS will no longer be reinvested in Treasuries, but rather in Agencies through purchases in the secondary market.
• The impact of the program on 10y Treasury yields will likely be comparable to QE2, in the range of 15-20 bps. The cumulative effects would correspond to a fed funds rate target cut of roughly 45-60 basis points, with the potential to offer a boost of about 0.3% to headline growth over the next year.
• Should the economy and financial market conditions weaken further, renewed asset purchases of long-term Treasuries, as well as agency mortgage securities, seem to be the likeliest outcome for the Fed in order to boost the sluggish recovery.