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Are Expectations of 'Operation Twist' Misguided?

Monday, 19 Sep 2011 | 1:02 PM ET

Put your ear to the ground on Wall Street and you’ll likely hear about growing expectations of a late week rally, post Fed meeting.

The optimism stems in part from the decision to expand what was scheduled as a one day meeting to two-days to allow for a ‘fuller discussion’ of the ‘range of tools that could be used to provide additional monetary stimulus.’

Pros take rhetoric to mean Ben Bernanke is looking to launch Operation Twist in an effort to stimulate the economy and in the process send bulls off to the races.

But Fast trader Brian Kelly thinks those expectations may be misguided.

Here’s why:

”Operation Twist means selling the short end of the curve which would be 2-year notes and buying 30-year notes,” he explains.

”Although the 30-year notes have come down in yield so have 2-year notes. If investors were really expecting Operation Twist – they’d be thinking 2 year rates would be a little high – and that’s not what we’re seeing in the bond market.”

As a result, Kelly thinks investors who are hoping the Fed gives the market a boost this week may be a little disappointed. ”The market hasn’t reacted as if Operation Twist is going to happen,” says Kelly.

The FOMC statement will be released around 2:15 PM ET on Wednesday.

The Bernanke Bottom?
According to the latest CNBC Fed survey, investors are overwhelmingly banking that the Fed will launch "operation twist" this week, but will it be enough to turn the trend? Insight with CNBC's Steve Liesman.




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Trader disclosure: On Sep 19, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders;


JJ Kinahan
Kinahan is long Bank of America (BAC) through stock and options
Kinahan is long CBOE Volatility Index (VIX)
Kinahan is long Citigroup (C)
Kinahan is short S&P 500 through options

Steve Cortes
Cortez owns (SO)
Cortez is long Treasury Bonds
Cortez is short Gold
Cortes is short the Euro
Cortes is short the Australian Dollar

Andy Busch
No disclosures

Nishu Sood
No disclosures




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