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How the PBoC’s new MLF affects the yield curve

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  • El-Shagi, Makram
  • Jiang, Lunan

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.

Suggested Citation

  • El-Shagi, Makram & Jiang, Lunan, 2025. "How the PBoC’s new MLF affects the yield curve," Journal of International Money and Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jimfin:v:154:y:2025:i:c:s0261560625000622
    DOI: 10.1016/j.jimonfin.2025.103327
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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