Bigger than QE2 = The Twister

Prices on 30-year Treasury bonds have soared on the announcement of Operation Twist, at times driving yields below 3% for the first time since January 2009. The yield, which moves in the opposite direction to price, has fallen 0.21 percentage point since the day before the program was announced Sept. 21. Ten-year notes also have surged. Yields on both Treasury securities have moved off their recent lows.


Here is how the program works: The Fed will buy $400 billion of longer-term Treasurys—those maturing in six to 30 years—and in turn will sell $400 billion of Treasurys that mature in three months to three years.

Essentially, the Fed is sucking up bonds that have the most risk tied to interest-rate fluctuations. By doing that, the Fed shrinks the supply of those investments available to private investors, which raises the price.

But investors still need bonds with similar interest-rate risk, known as duration, in part because many of them have set duration targets within their investment portfolios.

Barclays Capital and other bond observers measure the impact of the Fed's buying through a concept known as 10-year equivalents, or the amount of 10-year notes an investor would have to buy to get the same amount of interest-rate risk.

In those terms, Operation Twist looks similar to, or a little bigger than, QE2.