Operation Twist is a program of quantitative easing used by the Federal Reserve. The so-called “twist” in the operation occurs whenever the Fed uses the proceeds of its sales from short-term Treasury bills to buy long-term Treasury notes. Short-term instruments mature in three years or less while long-term notes and bonds have a term between six and 30 years. Normally, the central bank replaces its purchases of short-term bills with new short-term bills.
Operation Twist is designed to put downward pressure on longer-term interest rates. It does this by lowering long-term Treasury yields. By buying long-term notes with the proceeds from short-term bills, It increases demand for Treasury notes. As demand rises, so does the price, just like any other asset. But higher bond prices
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