Yield curve control

Indian Economy glossary

Also called: YCC · Topic: Banking, Credit Creation and Monetary Policy · NCERT: Beyond NCERT

Meaning

Yield curve control (YCC) means a central bank picks a target for a specific long-term bond yield and promises to buy as many bonds as it takes to hold that yield. A yield is the return a buyer earns on a bond, and it moves opposite to the bond's price. When the central bank buys bonds, their prices go up, so their yields come down. It is an unconventional monetary policy tool. Central banks use it when short-term policy rates are already near zero and cannot usefully be cut further.

Example

From 2016 to 2024, the Bank of Japan targeted the yield on its 10-year government bond (JGB). Whenever market selling pushed that yield above the target, the Bank of Japan stepped in and bought bonds until the yield came back down. The Reserve Bank of Australia used a similar approach in 2020-21.

Don't confuse with

  • Quantitative easing (QE): under QE, the central bank commits to buying a planned amount of bonds and lets the yield settle wherever it does. Under YCC, it commits to a yield level, and the amount of buying is whatever that level requires.
  • Operation Twist: the central bank buys long-term securities and sells short-term ones at the same time. This lowers long-term yields without changing overall liquidity. It does not fix a target yield.

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