How the PBoC’s new MLF affects the yield curve

Makram El-Shagi and Lunan Jiang

Journal of International Money and Finance, 2025, vol. 154, issue C

Abstract: In this paper, we assess the impact of the Medium-term Lending Facility (MLF), an instrument recently introduced by the People’s Bank of China (PBoC), on treasury and corporate bond yields. This instrument and, more specifically, the transmission of its use through treasury bond yields to corporate bond yields play a major role in the more market-based policy framework the PBoC envisions for the future. Using a semi-parametric local projection framework, we show that the mechanism is already fairly effective, allowing the PBoC to manipulate the entire yield curve.

Keywords: Monetary policy; Yield curves; MLF; Chinese bond markets (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000622

DOI: 10.1016/j.jimonfin.2025.103327

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