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gauge the relative strength of the bond market and the general interest rates levels. (Note: the 10-year note has recently gained attention as a possible candidate to dethrone the long bond as a viable benchmark)

Inflation-Indexed Notes — These are newly introduced securities available in 10-year maturities and designed to offset inflation devaluation effect on the investment. Interest payments (coupon payments) are made semiannually, and the principal is payable at maturity. The difference here is that the interest payments and the final principle payment are adjusted for inflation, sheltering the investor from the ravages of inflation. (We cover inflation in an upcoming section.)

Technically, the Federal Reserve can carry out its open market operations using any type of asset. In practice, however, most types of assets cannot be traded readily enough to accommodate open market operations. Therefore the Fed must rely on highly liquid securities (liquid means that there is a high enough demand that it can be quickly …