Definition
Yield Curve Control
Yield curve control is a policy where a central bank targets a specific level for longer-term bond yields, buying unlimited bonds as needed to hold the cap.
The Bank of Japan is the best-known practitioner, pledging to keep 10-year Japanese government bond yields near a target by buying bonds whenever yields threaten to rise above the cap. This pins down borrowing costs across the economy.
YCC differs from ordinary QE because it targets a price (yield) rather than a quantity of purchases. Exiting YCC is delicate: when the BoJ widened its yield band, global bond markets and the yen reacted sharply, with ripple effects on emerging-market flows.
Related terms
- Bank of Japan (BoJ)The Bank of Japan is Japan's central bank, long known for ultra-loose policy including near-zero rates and yield curve control to fight decades of deflation.
- Negative Interest Rate PolicyA negative interest rate policy charges banks for holding excess reserves at the central bank, aiming to push them to lend rather than hoard cash during weak growth or deflation.
- Yield Curve InversionA yield curve inversion occurs when short-term bond yields exceed long-term yields, historically one of the most reliable warning signs of an approaching recession.
- Quantitative Easing / TighteningQuantitative easing is a central bank buying bonds to inject money into the economy; quantitative tightening is the reverse, draining money by reducing those holdings.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.