Yield Curve Control – What Is It?

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

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Transcript:

Easan Arulanantham:

Could you explain yield curve control? I hear people talking about, I’m not sure what it is and how it affects everything.

Tom Vaughan:


Yeah, yield curve control is essentially a theory, as far as I’m concerned. So far, I haven’t seen it be or heard about it being used yet. But the idea is that the Federal Reserve, typically when they’re trying to stimulate the economy will reduce the lower end of the yield curve. So the very short term end of the yield curve. And, you know, they’re trying to lower that fed the target Fed funds rate. But what happens when that gets to zero. And so now, okay, it gets to zero. So then we do quantitative easing, we start to buy bonds, to try to increase liquidity, kind of a controversial concept, but both done in 2008 downturn and this 2020 downturn. So one of the thoughts is that maybe they should be trying to control the longer term aspect of the yield curve also, like the 10 year, and so they could be purchasing tenure treasuries instead of short term treasuries as a stimulus.

So you get to zero on the short end, then you start working on the 10 year, and I’ve heard that there are a fair number of different previous Federal Reserve governors who are looking at that favorably. Right now, that’s exactly not going to happen, because we’re actually trying to raise the 10 year yield, in order to slow things down. And that’s been pretty effective in the August of 2020. The tenure was at around point 6%. And now it’s around 3%. So that we’re we’re making that happen. But there’s not an interest in lowering the tenure yield at this point in time, just because that’s exactly the opposite what they’re trying to do, but yield curve control is about stimulating an economy, especially after you’ve already done the first part, which is lowering the short end to zero, you can go negative because that’s another thought. Right? That’s what they do. and Europe. But maybe instead of going negative, you work on the longer term end of the spectrum.

Easan Arulanantham:


And some people have theorized that this is just a cheaper way of doing quantitative easing. So controlling the long end of the yield curve, instead of you know, actually just adding so much money, more money to the money supply.

Tom Vaughan:


Yeah, we could end up in this situation, the Federal Reserve raises rates so much trying to fight inflation, they kick us into a pretty heavy recession. And then, you know, they have to go the other way and start lowering rates. There are, you know, some people out there that are advocating that this is what’s going to happen. You know, it’s hard to tell this far in advance, but, you know, and then we get into a situation where the rates get back down to zero again, and etc. So, you know, I would imagine during our lifetimes here, we can see some different things happening along those lines. And but yield curve control hasn’t actually been something they’ve done here in the US anyway, that I’ve seen, but it is something that they’re probably going to look at more seriously going forward. As you said, it might be better than quantitative easing.

Tom Vaughan is a Certified Portfolio Manager and CEO of Retirement Capital Strategies. Retirement Capital Strategies is a registered investment advisor located in San Jose, California.

The opinions voiced in these presentations are for general information only and are not intended to provide specific advice or recommendations for any individual(s). The information provided herein is obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness. Statements and opinions are subject to change without notice. Asset allocation and portfolio diversification cannot assure or guarantee better performance and cannot eliminate the risk of investment losses. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. Accordingly, you should not rely solely on the information contained in these materials in making any investment decision as the material does not take into account your particular investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. You must make an independent decision regarding investments or strategies mentioned in this presentation. Before acting on information discussed in this presentation, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment advisor. Prospectuses, investment objectives, risks, charges and expenses of any investment product should be reviewed carefully before investing. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Retirement Capital Strategies and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Tom Vaughan or Retirement Capital Strategies unless a client service agreement is in place. “Likes” are not intended to be endorsements of our firm, our advisors or our services. Please be aware that while we monitor comments and “likes” left on this page, we do not endorse or necessarily share the same opinions expressed by site users. While we appreciate your comments and feedback please be aware that any form of testimony from current or past clients about their experience with our firm is strictly forbidden under current securities laws. Please honor our request to limit your posts to industry-related educational information, comments and questions. Third-party rankings and recognitions are no guarantee of future investment success and do not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the advisor by any client nor are they representative of any one client’s evaluation. Investment positions mentioned in these videos may be held in some of our existing portfolios. Tom Vaughan and Retirement Capital Strategies are unaffiliated and separate from those companies whose investment positions are mentioned and is not liable for their products or services.

By participating in any of these live streams, you agree that any questions submitted by you might be used by us in the future on this YouTube channel. We will not share your personal information.

If you have questions, please write to us at: asktom@talkmoneywithtom.com.

  • MoneyGuidePro®
  • Advent Software/Black Diamond Reporting
  • Riskalyze, Inc.
  • thinkpipes®
  • Right Capital
  • YCharts, Inc.