Buying Bonds in Bulk

Since 2008, 30-year Treasury Bonds have gained more than any other maturity of U.S. Treasuries… more than 10-year, 5-year and 2-year notes.

Basically, bond prices go higher as coupon interest rates go lower. And interest rates can go no lower than 0% (theoretically, at least).

Currently, the rate on 30-year Treasury Bonds is 3%. On 2-year notes, it’s 0.25%. This means the 30-years bonds have a lot more room to move down to 0%. So the price of these can continue to go up, up and away. And that’s the precise goal of Operation Twist.

Here you see the long-term upward trend of 30-year U.S. Treasury Bond futures.

See larger image

It’s a good bet this chart will continue higher.

The Fed will be buying 30-year Treasuries in bulk to drive long-term rates lower.

Eventually, the bond market will returnrn to its usual role as an accurate gauge of investors’ expectations of the future. But for now, the Fed’s permanent bid should keep this market moving higher.

If you haven’t done so already read the Survive & Prosper issue on “Federal Reserve’s Operation Twist will continue through the end of 2012″.