Yield Curve Control

Simple Definition for Beginners:

Yield curve control is a monetary policy tool used by central banks to manage interest rates and influence borrowing costs by targeting specific yields on government bonds across various maturities.

Common Use Example:

A central bank implements yield curve control by setting target yields on government bonds. This influences market interest rates, impacting lending rates for businesses and consumers.

Technical Definition for Professionals:

Yield curve control involves a central bank’s strategy of targeting specific yields on government bonds, typically longer-term bonds, to influence interest rates and economic conditions. Key aspects of yield curve control include:

• Target Yields: Central banks set target yields for government bonds, often focusing on longer-term maturities.
• Open Market Operations: Central banks conduct open market operations, buying or selling bonds to achieve target yields.
• Market Influence: By targeting specific yields, central banks influence market expectations, investor behavior, and borrowing costs.
• Monetary Policy Transmission: Yield curve control is part of the broader monetary policy toolkit, impacting lending rates, investment decisions, and economic activity.
• Policy Flexibility: Central banks can adjust target yields and bond purchases as economic conditions change, providing flexibility in monetary policy.