The RBA pinned Australia's three-year yield at 0.25% in one announcement

In March 2020, as the pandemic threatened to blow out Australian borrowing costs, the Reserve Bank moved on three fronts in one package: it cut the cash rate target to 0.25 per cent, it announced a target for the yield on three-year Australian Government bonds of around 0.25 per cent, and it opened a term funding facility offering banks particularly cheap credit if they lent to small business. Government bond yields had already declined to historic lows; the target was designed to keep them there and to carry the whole family of rates that price off the three-year curve.

The mechanism was quantity-flexible, price-fixed: the RBA committed to purchase government bonds in the secondary market as needed to hold the yield at target. Anyone betting the yield would rise would be selling to a central bank with an unlimited mandate at a fixed price — a losing trade by construction. The term funding facility ran alongside, so banks had cheap funding to on-lend rather than competing with the government for deposits.

The design copied an emerging playbook: Japan's central bank had pinned ten-year yields around zero since 2016, and the yield-target approach was at that moment being studied in the United States as a way to hold down longer-term rates when the policy rate is at zero.

Fix the three-year yield; buy the gap

Targeting the three-year yield anchors the rates on which household and business borrowing actually price, not just the overnight cash rate.

An unlimited purchase commitment at a fixed yield is self-enforcing: trading against it guarantees losses, so the market does the pinning.

The term funding facility gave banks cheap three-year money conditional on credit growth, transmitting cheap rates to small business.

Moving all three levers in one announcement compounded credibility — no lever had to prove itself alone.

Announcing a price with unlimited quantity behind it changes market behavior before a single bond is bought: the target, not the purchases, does most of the work.

The RBA joined Japan — whose central bank has pinned ten-year yields around zero since 2016 — as the second developed-market central bank running a formal yield target, in a crisis deployment that turned a once-obscure wartime instrument into a live policy option for the zero-rate era.