Money & Finance · advanced
What moves on the Term Structure of Interest Rates diagram
Large-scale bond purchases compress the term premium and signal low rates for longer, flattening and lowering the entire yield curve.
Rates are already near zero, so the central bank starts buying long bonds directly.
The purchases bid up bond prices, which means yields fall, and squeeze the term premium.
The whole curve sinks and flattens: cheap borrowing at every horizon.
This was the post-2008 and pandemic-era playbook. Its unwind (quantitative tightening) plays the same movie in reverse.
Examiners ask this as: quantitative easing, qe, bond buying, asset purchases, central bank buys bonds.
Other scenarios on Term Structure of Interest Rates