Operation Twist

AAA

DEFINITION of 'Operation Twist'

The name given to a Federal Reserve monetary policy operation that involves the purchase and sale of bonds. "Operation Twist" describes a monetary process where the Fed buys and sells short-term and long-term bonds depending on their objective. For example, in September 2011, the Fed performed Operation Twist in an attempt to lower long-term interest rates. In this operation, the Fed sold short-term Treasury bonds and bought long-term Treasury bonds, which pressured the long-term bond yields downward.

INVESTOPEDIA EXPLAINS 'Operation Twist'

The name "Operation Twist" was given by the mainstream media due to the visual effect the monetary policy action was expected to have on the shape of the yield curve. If you visualize a linear upward sloping yield curve, this monetary action effectively "twists" the ends of the yield curve, hence the name Operation Twist.

RELATED TERMS
  1. Alan Greenspan

    The former chairman of the Board of Governors of the Federal ...
  2. Tight Monetary Policy

    A course of action undertaken by the Federal Reserve to constrict ...
  3. Fed Model

    A model thought to be used by the Federal Reserve that hypothesizes ...
  4. Bond

    A debt investment in which an investor loans money to an entity ...
  5. Deflationary Spiral

    A deflationary spiral is when a period of decreasing prices (deflation) ...
  6. Negative Interest Rate Policy (NIRP)

    A negative interest rate policy (NIRP) is an unconventional monetary ...
Related Articles
  1. Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  2. Economics

    How Much Influence Does The Fed Have?

    Find out how current financial policies may affect your portfolio's future returns.
  3. Economics

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  4. Economics

    What’s Driving U.S. Stocks? Irony.

    A seesaw week for U.S. stocks ended on the upside last week, though the rally was more a function of slow growth rather than a booming economy.
  5. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  6. Economics

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
  7. Economics

    What is Fiat Money?

    Fiat money is currency that a government has declared to be legal tender, but is not backed by a physical commodity.
  8. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  9. Economics

    What Do You Need To Know About Inflation?

    When it comes to inflation, there is no shortage of opinions: one side argues the Fed should raise rates, and the opposition says the Fed should stay put.
  10. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center