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

Free cash flow yield
Glossary

Free cash flow yield

The free cash flow (FCF) yield is a way to decide whether a firm is cheap or expensive based on its cash flows rather than, say, its earnings.
4 Aug 2022
Advertising in MoneyWeek
Glossary

Advertising in MoneyWeek

To book magazine, email or website advertising, please contact:
26 Jul 2022
Marking to market
Glossary

Marking to market

This is the process of updating a portfolio to reflect the latest available prices.
23 Jun 2022
What is a stock split?
Glossary

What is a stock split?

A stock split increases the number of a corporation's issued shares by dividing each existing share.
4 Apr 2022

Most Popular

Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
Earn 4.1% from the best savings accounts
Savings

Earn 4.1% from the best savings accounts

With inflation topping 10%, your savings won't keep pace with the rising cost of living. But you can at least slow the rate at which your money is los…
27 Sep 2022
The pick of this year's best-performing investment trusts
Investment trusts

The pick of this year's best-performing investment trusts

Market conditions haven’t been easy, but these investment trusts have delivered strong growth, says David Stevenson.
23 Sep 2022