Salient to Investors:

Operation Twist is scheduled to end soon – Capital Economics said the Fed doesn’t have any more short-term Treasury securities to sell, at least not with maturities of less than three years.

Kathy Jones at the Schwab Center for Financial Research said the bond market can count on the Fed to hold short-term interest rates near zero for some time to come, and the Fed is likely to introduce further innovations, maybe this week. Jones said the Fed is trying to persuade investors, consumers and business that money will be cheap and plentiful for a long time to come.

Ed Yardeni said stocks still react to news events, but bonds barely do, a nearly perpetual rally that can’t last forever. Yardeni said ultra low yields and remarkably rich prices have persisted largely because of the Fed’s daring, and for the foreseeable future the bond market will keep following the Fed.

Ned Davis Research said the Fed is likely to replace Operation Twist with purchases of Treasuries, perhaps in the $45 billion a month range, bringing its total monthly purchases to $85 billion.

Jim McDonald at Northern Trust expects the Fed to err on the side of accommodation, and convert Operation Twist into full-bore quantitative easing.

Blue Chip Economic Indicators for November showed forecasters expect GDP of 1.7 percent in Q4 and 2 percent in 2013.

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