New York Fed announces new Treasury bond operations
Operation Twist, concocted in 2011 by Ben ‘Big Brain’ Bernanke came about with all sorts of egghead theorizing about its mechanics, effects and viability. Oh, it was viable and it had effects.
As per the Fed’s stated intention at the time, Operation Twist, the bond market manipulation extraordinaire, was the act of “sanitizing” inflation from macro signaling (as the Fed bought long-term bonds, sold short-term bonds and drove the yield curve lower). In other words, it was an early example of
MMT (modern monetary theory) TMM (total market manipulation). They literally painted the macro to a desired outcome after inflation had started to get out of the barn in 2011.
Operation Twist served to kick the US economy into the blessed state of a multi-year Goldilocks economic backdrop whereby a strong US dollar sucked capital into the United States while gold went back to the hell it came from (into spring of 2011 gold, led by silver, had exhibited relatively more inflation protection utility than it is exhibiting today) and Global markets became subject to deflationary forces. Bye bye inflation, as if by magic.
This week the New York Fed announced something that sounds like yield curve manipulation (or at least, tweaking), conveniently just as inflation expectations (and fears) start to get out of hand. You’ve got to hand it to the eggheads. They are cynical and self-conscious of the main tool they use, which is and always will be under a Keynesian system, inflation. Thanks to a reader for pinging me about this:
They present it as an evening out of their holdings across the different maturities, but the effect is going to be a favoring of long-term bonds over short-term bonds. Yield curve control? I am not a bond expert, but it will have influence at least.
It sounds like a picture of normalcy like hey, allocations are heavier in short-term bonds and we are going to remedy that with a normal evening out of weightings. But the thing is, they already manipulated short-term yields with ZIRP so they are remedying one manip with another. It’s compound manip and I guess we are in the age of manip-eternity.
Ah, the wonders of MMT and the eggheads that promote it. It’s maniacal (said with a measure of admiration for evil genius).
As a result of these changes, the allocation across the 7- to 30-year nominal coupon maturity range will increase by 3 percentage points, in line with shifts in the distribution of Treasury securities outstanding. The allocation to the shortest nominal coupon sectors and Treasury inflation-protected securities (TIPS) will decrease modestly.
Operation Twist killed gold. Is this another Op/Twist? It’s too soon to tell. Gold has already done a lot of good work unwinding what distorted it in 2020…
But if they are successful in painting the macro as they did in 2011 then sure, have your dedication to the honest monetary value metal, but also have a healthy regard for the power of lies and evil. I mean, it’s finance. They can and will pretty much do whatever the fuck they want.
Conveniently, the news comes as the yield curve ticked a new high above the 2016 high…
…but has flattened out since inflation expectations got out of hand in March.
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