Operation Twist Slows Sales of Rate-Tied Notes

Sales of U.S. structured notes that gain when the gap grows between short- and longterm interest rates have fallen by 82 percent after the Federal Reserve decided last year to drive down longer rates.

Issuance of the securities dropped to $99.2 million over the last nine months, compared with $571.1 million in the same period a year earlier, according to data compiled by Bloomberg. The notes are often called “steepeners” because they rise if the difference between long- and short-term rates increases.

“I’m not going to buy a steepener now if I know with reasonable certainty that nothing is going to happen to rates in the next year,” said Guus Oonincx, founder of G.O. Capital Markets Consulting Services LLC and a former managing director at ING Financial Group. “There’s more hunger for looking for other sources of yield than interest rates. Interest rates are just dead.”

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