Tags: fed | 50-year | treasury | bond

Fed's New Tool: The 50-Year Treasury Bond?

Sunday, 11 Sep 2011 04:21 PM

The Federal Reserve is on standby right now but says it's ready to act should the economy continue to plod along as weak as it's doing.

One of those moves, known by the markets as Operation Twist, would involve the Fed shifting its asset portfolio to hold more longer-term debts in an effort to keep interest low.

The idea is that with longer-term interest rates staying low, people and businesses will undertake more longer-term investments.

Along with Operation Twist, the Fed could conceivably roll out a new debt instrument: the 50-year Treasury bond, which it would both issue and buy in the open market, experts say.

"This is a viable option for them," says Jeff Kilburg, senior development director at TreasuryCurve, an online trading platform, according to CNBC.

"They're able to extend that debt, that's the whole key. Clearly the global economy is an open wound. This is an important tactic that would instill some confidence, clarity and vision and provide a template for the European problems."

Currently, the 30-year bond serves as the Fed's instrument with the longest maturity, and Fed officials say officially, there's no 50-year bond in the works.

Fed Chairman Ben Bernanke has yet to announce — or even hint — at any extraordinary measures designed to keep the economy in line with the central bank's dual mandate: keeping inflation and unemployment rates at optimal levels.

"The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus," Bernanke said in a speech in Minneapolis, according to the AFP newswire.

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