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.

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