Illustration ECOTV Mars

Should central banks adopt a policy of yield curve control ? This debate has intensified following the important upward move of US bond yields. Central banks watchers are wondering what is the best reaction to adopt faced with this increase in bond yields. As a reminder, the increase in US bond yields is occurring against the background of an economy which is recovering, an additional major stimulus package which has been prepared by the Biden Administration, an ongoing very accommodating monetary environment and a very successful vaccination campaign. All of this create an upward pressure on bond yields that has had global repercussions. This is what traditionally happens when US yields move up, they have spillovers effects on the rest of the world. Inevitable yes, but also most unwelcome because there is a desynchronization between the US and other parts of the world where the economic momentum is less dynamic, think of the European union for instance. At present, very few banks have adopted a policy of explicit yield curve control. The Bank of Japan introduced this policy a few year ago. They are targeting the 10-year yield. The Reserve Bank of Australia has a similar policy and they are targeting the 3-year yield.  The Reserve Bank of Australia was very explicit in reaction to the rise of US bond yields recently. It has reconfirmed its policy and has also intervened in the bond markets to make sure that the yield levels stay close to its target…