Twist & Shout

There has been inceasing chatter about Operation Twist and i thought i should talk about it and its ramifications. It is a brilliant plan hatched by the Fed however the impact will probably be minimal. It involves selling short dated Treasuries and buying longer dated, 10 years +, treasuries. Given that the short term treasuries yield less than .20% under  year – it will technically be close to a costless short and by buying long bonds would drive the interest rate down for those bonds. The net effect would be to flatten the yield curve and force investors to look for yield in more riskier assets – like stocks…

Its brilliant because it doesnt increase the monetary base, ie no printing money, and reduces the cost of capital such that businesses or investor would be incentivized to borrow long term and deploy into inventories, stock, consumer goods etc.

I could get more technical but the bottom line is that you might want to get ahead of this trade and buy long dated bonds and high dividend yielding blue chip stocks.


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