NEW YORK (CNNMoney) -- Bond yields are twisting much like they did last fall following the Federal Reserve's announcement Wednesday that it is extending its so-called Operation Twist program -- a widely anticipated move.
Under Operation Twist, which was introduced by the Fed last September, the central bank planned to buy Treasuries with maturities between 6 and 30 years before the end of June 2012 and sell the same amount with maturities of 3 years or less.
The move was designed to boost lending and lower longer-term interest rates.
On Wednesday, the Fed said that it will keep the program going "at the current pace," with the aim of buying $267 billion worth of Treasuries by the end of 2012.
But the big concern among investors is: what can pushing interest rates down more do for the broader economy at this point?
"The Fed keeps filling up this balloon and putting more air in," said Kenneth Naehu, head of fixed income trading at Bel Air Investments. "The more they pump it up it starts to get more dangerous and more likely to pop."
The 10-year yield slid to 1.63% immediately following the news but quickly moved back to 1.67% -- where it was just before the Fed's statement. But it slid back to 1.63% as traders signaled disappointment in Bernanke's comments.
While many in the market saw the Twist as just more of the same, Bernanke called it a "substantive step." He made it clear that the Fed has more ways to move the markets.
"Monetary policy still has some capacity to strengthen the economy by easing financial conditions," Bernanke told a room of reporters, adding that the unemployment rate will help dictate the Fed's next moves.
Several fixed income analysts called Twist the Fed's wait-and-see approach.
"The bottom line for us is the Fed is trying to buy more time," said Bret Barker, fixed income portfolio manager at TCW.
The dance moves are much more subdued than last fall. When Operation Twist was announced last year, 10-year yields quickly fell to a record low.
Since then, yields on 10-year Treasuries have hit fresh all-time lows as investors all over the world have been willing to forgo returns to simply hold a security backed by the safety of the U.S. government.
Should problems in Europe continue to pull down the broader markets, investors are at least momentarily breathing a sigh of relief that the Federal Reserve has kept one bullet in its arsenal: another round of bond buying to flood the economy with more money.
"As long as the Federal Reserve can keep the market believing that they stand ready to do something, things are somewhat safe," said Naehu.
"My real fear is that at some point, the market won't believe the Fed."
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