Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to hold rates at a certain level.

In “normal” times, central banks try to stimulate (or cool down) the economy by cutting or raising short-term interest rates, and thus wider borrowing costs. But since the 2008 financial crisis interest rates across the developed world have been stuck at near-0%. So central banks have experimented with more extreme monetary policies, such as quantitative easing (QE – printing money to buy government bonds and other assets). “Yield-curve control” is one such policy.

A yield curve compares the yields on bonds with the same credit quality across lengthening maturities. So the Treasury yield curve shows how interest rates on US government debt change as the repayment date gets further away. A healthy yield curve slopes upwards from left to right – bonds with longer maturities yield more than short-term ones. That makes sense, because in normal circumstances you expect to get paid more to wait for your money.

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to hold rates at a certain level. This is a form of “financial repression”. By capping bond yields at a level below inflation, government debt becomes easier to repay, but life becomes harder for savers. A key question, as Steve Russell notes on page 29 in this week’s MoneyWeek Roundtable, is how high inflation has to go in this scenario before investors feel that high asset prices can no longer be justified purely by interest rates being at or near 0%.

Recommended

Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020
Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
21 Sep 2020

Most Popular

A simple way to profit from the next big trend change in the markets
Investment strategy

A simple way to profit from the next big trend change in the markets

Change is coming to the markets as the tech-stock bull market of the 2010s is replaced by a new cycle of rising commodity prices. John Stepek explains…
14 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
Here’s why markets have shrugged off the US political turmoil
Investment strategy

Here’s why markets have shrugged off the US political turmoil

Despite all the current political shenanigans in the US, markets couldn’t seem to care less. John Stepek explains why, and what it means for your mone…
7 Jan 2021
Free 6 issue trial then continue to