QUICK DEFINITION
Policy Rate is an interest rate set or targeted by a central bank to influence monetary and financial conditions.
WHY IT MATTERS
Why Policy Rate matters in bond markets
Expected policy-rate paths are a major driver of short- and intermediate-maturity government bond yields.
MARKET CONTEXT
How to think about it
Bond investors use policy rate as part of a wider framework that links prices, yields, cash flows, liquidity and risk. The concept should therefore be read together with its related terms rather than as an isolated definition.
Is Policy Rate important for fixed-income investors?
← Back to the Bond Market Glossary Yes. Expected policy-rate paths are a major driver of short- and intermediate-maturity government bond yields.