Yield Curve Control

Here comes the rain again

Falling on my head like a memory

Falling on my head like a new emotion

--Eurythmics

The latest fad in monetary policy circles is called yield curve control. YCC is close cousin to the previous fad known as quantitative easing (QE). Both are forms of debt monetization (read: money printing).

In QE, central banks declare that they will regularly purchase X dollars worth of particular fixed income securities on the market, and then proceed to do so, usually on a monthly basis, until some type of monetary (e.g., interest rate target) or economic goal (GDP growth) is reached.

In YCC, no particular security or dollar amount is targeted. Instead, the idea is to maintain a certain disposition of the yield curve. Essentially, yield curve control is QE unshackled. It hands central banks a blank check to print however much money they want to purchase however many bonds at whatever duration fits their fancy in pursuit of a yield curve to their liking. 

It should be plainly apparent that YCC is consummate central planning...and grossly inflationary.

Chatter about YCC has gotten loud enough that market participants have begun to price it in. Yesterday, Fed head Jerome Powell made comments that caused many onlookers to conclude that the Fed might not be employing YCC as soon as folks figured.

This caused the bond market to fall out of bed--particularly at the long end of the curve where the market figures the Fed would be focusing early YCC efforts.

Ten Year yields are now back to where they were prior to the CV19 meltdown. As we have noted, the Fed needs to keep these rates under control. 

We can be confident that, if it is unable to talk rates down, then the Fed will try to buy 'em down using YCC.

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