The expert panel is queried on vexing topics of investor concern.
Carl Berrisford (analyst, UBS Wealth Management Research) is asked: What is operation twist?
Operation twist has some similarities to the quantitative easing (QE) policies carried out by the US Fed in that it seeks to buy long-term treasuries to bring down long-term rates. However, there are some important differences.
One problem with the previous QE programme was that, while it raised banks' reserves (and the amount banks could lend on to consumers), banks themselves were not able to increase their lending much. Instead, they preferred to use cheap short-term funding rates to invest in higher rate long-term treasuries to lift bank profits.
Operation twist seeks in part to address this by lowering long-term yields relative to short-term ones and forcing banks to lend more.
Specifically, operation twist will replace US$400 billion of short-term debt with long-term debt by buying bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less. This should 'flatten the yield curve' and ultimately encourage banks to lend more. Unlike quantitative easing there is no extra liquidity and no 'specified quantity' of new printed money used to purchase bonds; it is self-funding. As a result, the US government's balance sheet does not expand and it is not deemed quite as inflationary as quantitative easing. This is important to US authorities who are concerned about the inflationary impact of increased liquidity given consumer price index rises of 3.5 per cent.
Emil Wolter, (head of regional strategy, Asian equities, RBS) is asked: What is the best strategy for equity investing in this market?