Tag Archives: Operation Twist

Cutting Through the B/S…

“Inflation has been running somewhat below the Committee’s longer-run objective”

We have willfully put our big brains to use by manipulating the inflation picture over the last 1.5 years.  The pivot point was Bond King Bill Gross’ epic bet on rising long term rates (and inflation).  Now, as our ingenious Twist ends and we go forth in straight, unsanitized monetization of Treasury and MBS debt, we have a delightfully tame – errr, even below our objectives, LOL – inflation picture.

The Ending of Twist

From MarketWatch

“The Federal Open Market Committee Fed’s bond-purchase programs, known as Operation Twist, expires next month. Under the program, the Fed has been buying long-term Treasurys and selling its holdings of shorter-dated Treasurys, effectively “twisting” the yield curve that charts the gap in yields between different maturities.

Investors expect the Fed to continue its buying of long-term Treasurys while letting the short-term sales expire, in effect expanding its program known as quantitative easing, or QE, beyond large-scale purchases of mortgage-backed securities — something to which the Fed’s committed to doing as long as necessary.”

Below is a look at what the Twist manipulation has done as various items – and notably, gold – have been held in a corrective grip by the “sanitized” aspect of Twist, which does not increase the money supply.  It is of course bald faced (in that it is very official and not just in the realm of Tin Foil Hatters) manipulation of something that has traditionally been a ‘free market’ indicator of systemic stress or lack thereof.

yield spread

Here’s a compelling view by a log scale chart of gold dutifully following the yield spread.

yield curve and gold

Both charts have been used in NFTRH, where we a deal in what is, not what should be.  What is is a barbarous relic that also acts as monetary insurance and barometer of systemic problems towing the line with a yield curve whose structure has been manufactured.

What happens if they terminate (or are forced to terminate by lack of short-term bond supply) this operation in December as the currently announced Twist phase ends?  Well then, inflation may become just a little bit more honest.

Everyone Out of the Pool…

…and into Treasuries!  Wheeeee!!  Oh and it looks like the Fed is still Twisting and hence, working over the yield curve in a gold unfriendly manner.  The indication is from long-term bonds out performing short-term ones, as people just gotta get that debt of Uncle Sam, who they trust is not an epic and chronic inflator.