For the young and for the nostalgic, here’s Chubby Checkers performing “The Twist” way back in 1961: https://www.youtube.com/watch?v=-CCgDvUM4TM&list=RD-CCgDvUM4TM&start_radio=1
US policy is now clear:
- Favor more short-term T-bills in new federal debt issuance.
- Use available tools to shorten outstanding US Treasury debt maturity.
- Try to force interest rates lower using rules (credit cards) or Fannie and Freddie (home mortgages).
- Develop new forms and instruments like the possible forthcoming SOFR-linked floaters.
A technical paper about US Treasuries and world demand for them can help readers to think about the problem. Please take time to read:
“A ‘reverse conundrum’ and foreign official demand for US Treasuries” by Rashad Ahmed and Alessandro Rebucci (January 15, 2025) | VoxEU and CEPR, https://cepr.org/voxeu/columns/reverse-conundrum-and-foreign-official-demand-us-treasuries.
Now let’s get to the “twist.”
Operation Twist is the name of a formal Fed policy change that attempts to force interest rates to change by altering which US Treasury securities the Fed buys in its ongoing operations. So, a formal Twist is originated by the Fed. For example, the Fed may buy more longer-maturity bonds to force long-term interest rates lower. Or it can be vice versa, but that is not the usual purpose. For details see:
“Understanding Operation Twist: Impact on US Economy and Interest Rates” | Investopedia,
https://www.investopedia.com/terms/o/operation-twist.asp
When the US Treasury does it, this manipulation of the maturity structure has a different name: It is called maturity management. The outcome is similar regardless of which organization is employing the tactic. The organization uses its organizational power and structure to alter the shape of the yield curve. Here’s some history of previous attempts by Treasury.
Summary of Historic Issuance-Driven Maturity Shifts
1. 2020–2021: Pandemic-Driven Surge in T-Bill Issuance
During COVID‑19, the US Treasury dramatically increased T‑bill issuance to meet emergency funding needs, which shortened the overall maturity profile of outstanding debt. For more information, see
- U.S. Department of the Treasury – Treasury Borrowing Advisory Committee (TBAC)
“Considerations for T‑bill Issuance” (July 2024)
https://home.treasury.gov/system/files/221/TBACCharge1Q32024.pdf - “Unraveling Operation Twist: A Detailed 2026 Analysis of the Federal Reserve’s Strategy” | Banking Times, https://bankingtimes.co.uk/federal-reserve-operation-twist-analysis/
2. 2022–2024: Favoring Short-Term Bills to Reduce Financing Costs
The Treasury continued relying heavily on short-term issuance to keep borrowing costs down, raising concerns that the share of T‑bills was rising well above the traditional 15–20% range. To learn more, see these sources:
- Jeff Cox (CNBC)
“The battered bond market starts 2025 facing some difficult issues about debt” (CNBC, Jan 1, 2025)
https://www.cnbc.com/2025/01/01/the-battered-bond-market-starts-2025-facing-some-difficult-issues-about-debt.html - “The effectiveness of the Federal Reserve’s Maturity Extension Program – Operation Twist 2: the portfolio rebalancing channel and public debt management” | BIS, https://www.bis.org/publ/bppdf/bispap65n_rh.pdf
3. 2025 Maturity Wall: Treasury Intentionally Shortens Duration
Facing a $9.2 trillion “maturity wall,” the Treasury announced a strategy to issue more T-bills and fewer long-term notes/bonds, explicitly shortening duration to avoid locking in high long-term rates. For details see
- “The Treasury’s Yield Curve Play: The 2025 Maturity Wall” (July 9, 2025) | Validus, https://www.validusrm.com/2025/07/09/insights-the-treasurys-yield-curve-play-the-2025-maturity-wall/
- “Understanding Operation Twist: Impact on US Economy and Interest Rates” | Investopedia,
https://www.investopedia.com/terms/o/operation-twist.asp
4. 1970s Structural Shifts in Long-Term Bond Issuance
The Treasury extended its maturity structure over time by moving from 25-year bonds (1974) to 30-year bonds (1977) — illustrating historical maturity mix adjustments. For more information, see
- “History of US Treasury Bonds” | US Treasury – TreasuryDirect Research Center,
https://www.treasurydirect.gov/research-center/history-of-marketable-securities/bonds/ - “Timeline of US Treasury Bonds,” | US Treasury – TreasuryDirect Research Center https://www.treasurydirect.gov/research-center/timeline/bonds/
Let’s get to today. The dominant actor is the US Treasury, not the Fed, although there is some change in Fed policy that is increasing the Fed’s purchases of T-bills. But it is the Treasury’s issuance of T-bills that is growing as it alters maturity management to a shorter and shorter term structure.
A serious question for financial professionals and institutional investors is about dollar-linked stablecoins. We know that they’re coming, and we know that usage is rising in amounts and in multiple jurisdictions. We know that companies are rapidly advancing the technology to expand that usage. And we know that a stablecoin system requires a very well-managed, shorter-term fund that backs the token with US T-bills or other UST debt instruments. Note how a floating-rate SOFR instrument fits perfectly in this type of fund.
But, but, but. Do tokens increase demand for UST debt, or do they become a substitute for other forms of payments like cash or checking accounts or other forms of near-cash payment mechanisms? Will a blockchain stablecoin dollar-linked payment become a substitute for a Fedwire transfer? What happens to bank reserves and Fed policy tool options?
I will stop with the questions. Readers can use their imagination for the rest.
Finally, I would like to suggest this paper discussing important research about payments worldwide and the US currency and stablecoin world. It is highly relevant.
“Private money and public debt. U.S. Stablecoins and the global safe asset Channel” (Working Paper Series, No. 3174) | ECB, https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp3174~d4cc1da5a8.en.pdf
Kotok View
Whether we like it or not doesn’t matter. In the world of global finance, this new world order has arrived. And it has a new “twist.”
We close with some background for those who want to dig deeper.
“Chapter 8: Market Feedback Effects of Central Bank Operations under an Inflation-Targeting Regime,” from Strategies for Monetary Policy | Hoover Institution,
https://www.hoover.org/sites/default/files/research/docs/chapter_8.pdf.
Here’s Richard Clarida in 2019 about a “twist.” Circumstances then were the inverse of today’s. In my opinion, twisting didn’t work then and doesn’t work now. Any temporary benefit eventually makes matters worse.
“The vice chair of the Fed says if the yield curve inverts, he would take it ‘seriously’” | CNBC, https://www.cnbc.com/2019/06/04/the-vice-chair-of-the-fed-says-if-the-yield-curve-inverts-he-would-take-it-seriously.html
And here’s Richard Clarida recently:
“The Fed Cut. Now What? Former Vice Chair Rich Clarida Weighs In,” https://www.pimco.com/us/en/insights/podcasts/accrued-interest/the-fed-cut-now-what-former-vice-chair-rich-clarida-weighs-in
We close with a lesson from history:
“To Boldly Go Where We Have Gone Before: Repeating the Interest Rate Mistakes of the Past” | Federal Reserve Bank of St. Louis, https://www.stlouisfed.org/publications/regional-economist/july-1993/to-boldly-go-where-we-have-gone-before-repeating-the-interest-rate-mistakes-of-the-past
