Hold · Central bank financing
Maturity extension and Operation Twist
- What it is
- The central bank purchases longer-dated government bonds while selling or allowing shorter-dated holdings to mature, changing portfolio duration without necessarily expanding its balance sheet.
- Why it counts
- Removing long-term duration from the market compresses term premiums and cheapens long-term government finance.
When it was in force
- United States: 2011 → 2012, historical
- India: 2020, historical; the rule may be older than the cited document; its end is not documented
2 examples
United States
2011 → 2012HistoricalThe Fed announced $400 billion of purchases of six-to-thirty-year Treasuries matched by sales of Treasuries with three years or less remaining.
United States today: index 42.9FOMC decision of 21 September 2011 establishing the Maturity Extension ProgramPrimary source
“This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.”
India
2020HistoricalThe rule may be older than the cited document · Its end is not documented · As cited: November 2020 (documented operation)
The RBI scheduled purchases of government bonds maturing in 2025-2030 and sales of bills maturing in 2021, for ₹10,000 crore on each side.
India today: index 60.6RBI Press Release 2020-2021/627 of 12 November 2020, Special Open Market OperationsPrimary source
“simultaneous purchase and sale of government securities under Open Market Operations (OMO)”
Examples and their dates reviewed .
More central bank financing
Further reading
- The Coming Great Repression? New Measures and a Century of Evidence
- Financial engineering is no substitute for interest rates: Lessons from Türkiye
- What about Japan?
- Argentina: Request for an Extended Arrangement Under the Extended Fund Facility—Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Argentina (IMF Country Report No. 25/95)
7 more on central bank financing
- ‘Muddling through or tunnelling through?’ UK monetary and fiscal exceptionalism and the Great Inflation
- Reassessing the fall in US public debt after World War II
- Monetisation: Do not panic
- Indian Financial Sector: Structure, Trends and Turns
- Financial Regulation and Government Revenue: The Effects of a Policy Change in Ethiopia
- Financial repression: Then and now
- Financial Repression and Exchange Rate Management in Developing Countries: Theory and Empirical Evidence for India