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Market expects Operation Twist in Sept

Market expects Operation Twist in Sept
On Friday September 2, 2011, 2:44 pm
By Emily Flitter

NEW YORK (Reuters) – U.S. government bond investors see Federal Reserve action to boost the flagging economy as practically a done deal after Friday’s dismal jobs report.

Market participants now think the Fed will likely announce a plan to sell short-dated Treasury debt and use the proceeds to buy long bonds after its meeting later this month.

Government data showing the U.S. economy failed to create new jobs last month made the Fed’s move, about which there had been much speculation over the past two weeks, seem all but inevitable.

Known to some in financial markets as “Operation Twist,” the plan’s goal would be to flatten the yield curve, lower long-term interest rates and stimulate the economy.

The Treasury market appeared to price in greater likelihood of this after the jobs report, with U.S. 30-year bonds surging 3 points in price.

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