Fed's Rosengren's twist idea isn't getting much support from market players
Fed's Rosengren's twist idea isn't getting much support from market players. In his October 14 speech on the Not-So-Great Recovery, the Boston Fed voter, worried over the historically low 10-year Treasury rate and financial stability, briefly commented that the "balance sheet composition could be adjusted to steepen the yield curve" and suggested swapping MBS for Treasury bills. However, traders have noted the potential for increased volatility given the yield curve's shape is a function of spot rates and future inflation expectations, and hence may not evolve as expected. Hence, Rosengren's "operation twist" could be counterproductive. An easier way could be to just taper MBS reinvestments. Additionally, there could be problems with Treasury bill supply. Meanwhile, his ideas seem at odds with the thinking of Yellen who recently suggested the FOMC may maintain its bloated portfolio well into the future. Indeed, analysts doubt analysts'll ever see coupon sales under this Fed.