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Yield curve control (YCC)

A policy of pegging a specific bond yield by standing ready to buy unlimited quantities at that level, rather than targeting the quantity of purchases.

Under quantitative-easing the central bank fixes the quantity and lets the price go where it goes. Under YCC it fixes the price and lets the quantity go where it goes. The Bank of Japan ran a 10-year peg from 2016, and Australia ran a 3-year peg in 2020 and 2021.

YCC is cheap while credible and ruinous when it is not. If the market believes the peg, almost no buying is needed. If it stops believing, the bank must buy the entire float to defend the line, which is how Australia's peg broke.

Example: the target is 0.25% on the 10-year with a 0.50% tolerance band. Global yields rise and the bond trades at the 0.50% cap, so the bank buys tens of billions in a week and ends up owning more than half the issue.

Related: quantitative-easing, negative-interest-rates, term-premium, forward-guidance

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