DMPQ- Operation Twist

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 are offset by a lower yield for investors.

The Reserve Bank of India will conduct simultaneously sales and purchases of government securities under its open market operation programme. Dubbed as ‘operation twist’, the move is intended to push up shorter-term interest rates, while pushing down long-term rates. The RBI will buy Rs 10,000 crore in longer-dated government bonds, while selling an equivalent amount in shorter-dated treasury bi

 

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