Operation Twist (Operation Nudge)

The Federal Reserve’s “Operation Nudge” (cited in print from April 9, 1961) was renamed “Operation Twist” (cited in print from August 20, 1963), after a song and dance called “The Twist.” The Fed, through purchases of long-term bonds and other measures, attempts to “nudge up” short-term interest rates and “nudge-down” long-term interest rates. This attempts to increase money in current business cycles and reduce unemployment.
 
Although many economists and business owners did not think that Operation Nudge (1961) or Operation Twist (1963) had been particularly successful, the Fed did the “twist” again in September 2011.
 
 
Wikipedia: History of Federal Open Market Committee actions
This is a list of historical rate actions by the United States Federal Open Market Committee (FOMC). The FOMC controls the supply of credit to banks and the sale of treasury securities. At scheduled meetings, the FOMC meets and makes any changes it sees as necessary, notably to the federal funds rate and the discount rate. The committee may also take actions with a less firm target, such as an increasing liquidity by the sale of a set amount of Treasury bonds, or affecting the price of currencies both foreign and domestic by selling dollar reserves (such as during the Mexican peso bailout in 1994).
 
Famous Actions
Operation Twist
The Federal Open Market Committee action known as Operation Twist (named for the Twist dance craze of the time) began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. Although this action was marginally successful in reducing the spread between long-term maturities and short-term maturities, it did not continue for a sufficient period of time to be effective. Despite being considered a failure in near-term analyses, the action has subsequently been reexamined in isolation and found to have been more effective than originally thought. As a result of this reappraisal, similar action has been suggested as an alternative to quantitative easing by central banks.
 
Wikipedia: The Twist (song)
“The Twist” is a twelve bar blues song that gave birth to the Twist dance craze. The song was written and originally released in 1959 by Hank Ballard and the Midnighters as a B-side (to “Teardrops on Your Letter”) but his version was only a moderate 1960 hit, peaking at 28 on the Billboard Hot 100. The song, and the dance the Twist, was popularized in 1960 when the song was covered by Chubby Checker. His single became a hit, reaching number one on the Billboard Hot 100 on September 19, 1960 (one week), and then setting a record by being the only single to reach number one in two different chart runs when it resurfaced and topped the chart again on January 13, 1962 (two weeks).
   
9 April 1961, New York (NY) Times, pg. F1:
CHANGE DISCERNED
IN RESERVE POLICY
Short Life Sighted for Drive
to Nudge Downward the
Long Interest Rates
SHORT PURCHASES RISE
Return to Earlier Program
Is Seen With End of the
Slump and Gold Scare
By PAUL HEFFERNAN
One of the Federal Reserve System’s most questionable undertakings—an attempt to “nudge” the long-term interest rate downward while maintaining the level of short-term rates—is less than two months old, but is already being put down as a minor seasonal setback excursion of the central bank.
Pg. F9:
To date, “Operation Nudge” is exceptional on two counts. In the first place, it has not worked. Of nine typical issues of long-term Treasury bonds, six are selling today at lower prices or at higher yields than the day before the “nudging” began. This despite the fact that the Federal Reserve today holds more than $450,000,000 more Treasury securities due in more than five years than it did in mid-February.
 
7 May 1961, New York (NY) Times, pg. F1:
LONG-TERM DEBT
TERRA INCOGNITA
Little Heed Is Given Here
to the High Yields for
International Bonds
SHORT RATE NUTURED
“Operation Nudge” Described
as Failing to Go to the
Heart of the Matter
By PAUL HEFFERNAN
(...)
This was “operation up-nudge.”
 
The attempt to nudge up the short-term interest rate was much like the decision of a lunch wagon to double up on
the food portions to win back customers alienated by deterioration in the quality of the food. It did not go to the heart of the matter.
 
9 May 1961, New York (NY) Times, “Bonds: U.S. Securities and Prime Corporates Decline Slightly” by Paul Heffernan, pg. 58:
The Federal Reserve System’s “operation nudge”—an effort to keep banks amply supplied with an excess of lendable funds without depressing the investment yields on Treasury bills below a floor of about 2 1/8 percent—has generated a lot of reservations about how firm the present prices on intermediate and long-term Treasury obligations would be should the Reserve System halt its purchases of other than short-dated securities.
 
8 January 1962, New York (NY) Times, “Bond Movements Narrow in Range” by Paul Heffernan, pg. 82, col. 1:
“Operation Nudge” Fails
“Operarion Nudge” was viewed in the financial district as beingat odds with the instinctive practices of private investors. Anyway, “Nudge” did not work. When the Federal Reserve first moved to “Nudge” long-term interest rates down in February, none of the Treasury’s long-term bonds were selling at yields above 4 per cent. At the end of the year sixteen Treasury bond issues were selling at yields of more than 4 per cent.
 
20 August 1963, New York (NY) Times, “Bonds: Dealings by Federal Reserve Dominate the Market,” pg. 63:
The Federal Reserve’s continued use of “Operation Twist”—the lowering of bill prices while raising those on bonds—dominated an otherwise quiet day in the Government securities market.
 
8 September 1963, New York (NY) Times, pg. F1:
OPERATION TWIST
IS HELD A MIRAGE
Money Men Deny a Pledge
to Depress Long-Term
Interest Rates
By ALBERT L. KRAUS
The nation’s money managers are making it clear that they are under no commitment to hold down long-term interest rates. Growing realization of this fact could have an important effect on the Treasury’s two-part, $32,000,000,000 advance refunding—its biggest ever—announced last week.
 
In their daily discussions with Government securities dealers, in conversations with bankers and businessmen, and in background sessions withthe press, high Fedeal Reserve officials are making it known that “Operation Twist” is not a deliberate system policy.
 
‘Twist” is the latest slang for the attempt—real or imagined—to hold down long-term interest rates to stimulatethedomestic economy while propping up short-term rates to stem the outflow of liquid funds overseas. At the beginning of the Kennedy Administration the policy was dubbed “nudge.”
 
4 December 1963, New York (NY) Times, pg. 86:
Debt Policy
The debt policy of the United States Treasury and Federal Reserve is “widely misunderstood,” according to a leading authority on interest rates.
 
Speaking at the 17th annual correspondent conference on the First National Bank of Chicago the other day, Sidney Homer, a partner of Salomon Brothers & Hutzler, said he took exception to the popular belief that the Government’s monetary and fiscal policy, known as “Operation Twist,” was actually directed at holding down long-term Government bond yields.
 
‘In 1961,” he said, “the Treasury sold to the market for cash and refunding $4.3 billion of long-term bonds, a peace-time record. Open market purchases were only $800 million. In 1962 the Treasury sold $5.4 billion of new long-term bonds while purchases totaled less than $200 million. In 1963 the Treasury sold some $7.5 billion bonds, a third successive all-time record; open-market purchases of longer bonds were probably under 10 percent of these sales.
 
“This is an odd way to support a market, or to nudge a market or to twist a market—with sales anywhere from 10 to 40 times purchases,” Mr. Homer concluded.
 
8 December 1963, New York (NY) Times, “Treasury Moved Praised by I.B.A.” by John H. Allan, Business, pg. 5, col. 6:
Commonly called Operation Twist, this attempt to keep short-term rates up and long-term rates down came in for some faint praise at the hands of the bankers committee.
 
Robert B. Blyth, chairman of the group and an officer of the National City Bank, Cleveland, gave this conclusion:
 
“When you look at the year 1963 as a whole, interest rates have moved very largely in response to natural forces—implemented by appropriate monetary decisions and not in response to manipulation in the supply of Treasury bills on the one hand or open-market purchases of longer-term issues on the other.”
 
10 March 1964, New York (NY) Times, pg. 52:
No More Nudge?
Operation “nudge,” also known as operation “twist,” is dead, Aubrey G. Lanston & Co., Inc., asserted yesterday in its weekly letter. The Government-bond concern stated that the Federal Reserve Board has not dealt in securities outside the short-term market for three months.
 
‘Nudge"and “twist” are the names given to a program disclosed early in the Kennedy Administration to push up rates on short-term money and hold down rates on long-term funds. It was designed to help solve the United States balance of payments problem without making funds for business expansion too costly.
 
Has it worked? The opinions differ. It has achieved “results initially scoffed at by the disbelievers,“according to Walter Heller, chairman of the Government’s Council of Economic Advisers. But Lanston, confessing it “scoffed initially,” said, “the facts so far give us no reason to change our minds.”

Google News Archive
30 November 1964, Miami (FL) News, “Bank Rate Hike Holds Perils” by J. A. Livingston, pg. 9A, col. 5:
In the U.S. the Federal Reserve is engaged in “Operation Twist”—trying to keep long-term money cheap while helping short-term money rates to rise. Purpose: To keep prosperity rolling. Mortgage money to finance homes or “bond money” to provide long-term industrial capital would be easy. Consumer credit costs wouldn’t rise.
 
New York (NY) Times
Let’s Twist Again, Like We Did in ’61
By JEFF SOMMER
Published: September 10, 2011
(...)
Embedded in that speech (by President John F. Kennedy on February 2, 1961—ed.) was an unorthodox monetary policy that the Fed and Treasury were to conduct jointly. It was known within the Fed as “Operation Nudge,” because it involved nudging interest rates by altering the composition of the Fed’s portfolio. That name, though, didn’t catch on. (As far as we know, nobody was dancing the Nudge.)
 
Wall Street gave the new program another name. “In a kind of homage to the dance craze, traders started calling it, ‘Operation Twist,’ ” says Eric Swanson, an economist at the Federal Reserve Bank of San Francisco who has done extensive research on the operation’s effects.
(...)
Twist is a more apt description of what the Fed was actually doing — swinging longer-term rates in one direction (down), while moving short-term rates the other way.
 
CNNMoney
Federal Reserve launches Operation Twist
By Annalyn Censky @CNNMoney September 21, 2011: 2:35 PM ET
NEW YORK (CNNMoney)—The Federal Reserve announced ‘Operation Twist’ Wednesday, a widely expected stimulus move reviving a policy from the 1960’s.
 
The policy involves selling $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds.
 
While the move does not mean the Fed will pump additional money into the economy, it is designed to lower yields on long-term bonds, while keeping short-term rates little changed.