Op Twist Update

The lead time and trial balloon nature of a "transparent" Fed will keep History writers busy adjusting the inside/outside policy lags for analysis. Since the operation began, 10 year yields are up 50 bp and the interest cost on 2 year notes has doubled. Obviously, context is everything.

Another, possibly more important activity has popped up. Goldman Sachs issued 50 year debt at 6.5% (callable). THE Ohio State University issued 100 year debt at 4.85 (taxable). The knee-jerk response is usually, "Why isn't the US Gov. issuing longer dated paper?" The Treasury was moving the duration of the debt out structurally. Given the delicate nature of the system and the large amounts, they opted to NOT be a counter influence to the Fed's Twisting. Strong opinions will remain about the decisions from both agencies.

The side effect could prove to be more beneficial. T+ issuers are stepping into the void. A successful Twist, one that narrows spreads rather than lowers T rates, would open the door for more corporations to secure generational low long term financing. Roll over risk for Uncle Sam will provide plenty of heated discussion down the road. You know, that road with the can getting kicked down.

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