Operation twist

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Opinion about Operation Twist

The Operation Twist is a tool used by the FOMC in order to change the yield curve of the Treasury securities.The idea of this Institution is to buy $400 billion of Treasury securities that expires from 6 to 30 years, and also sell an equal amount ofTreasury securities with remaining maturities of 3 years or less, that means to change the yield curve from long-term treasury securities toshort-term ones.
What they get doing this is to buy a huge quantity of Treasury securities, so there can´t be bought by normal people who usuallyprefer short-term treasury securities. This is the reason of this action, because most of the people in the EEUU prefer to buy this in short term,they want to change this buying most of the offer of this product, and then sell it in long-term making that the yield curve change the shape.To conclude, in the article said that they won´t expand the overall size of its balance sheet, I think this is because they are going to sellthe same amount of money that they are going to buy, so the balance will be the same. I think that the consequences of this could be that nowwith the crisis people and governments need the money in short term more than in long, because they prefer to have the money in cash in few yearsthan in many, so maybe the demand of the short-term Treasury securities could decrease more than they want to.

Ignacio Hidalgo Sánchez, 4ºC
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