Yield Elbow

AAA

DEFINITION of 'Yield Elbow'

The point on the yield curve indicating the year in which the economy's highest interest rates occur. The yield elbow is the peak of the yield curve, signifying where the highest interest rates occurred.

The yield curve is the graphical relationship between the yield and maturity of bonds with different maturities and equal credit quality. Yield curves play an important role in the pricing of bonds, and are referenced by investors and analysts to identify opportunities for realizing high rates of return on certain investments. The yield elbow typically occurs when there are concerns about current or future inflation, and can correspond to low prices for bonds.

INVESTOPEDIA EXPLAINS 'Yield Elbow'

Three main types of yield curves exist, including normal, inverted and flat. A normal curve is one where longer maturity bonds have a greater yield compared with shorter-term bonds because of the risks associated with time. An inverted yield curve indicates an interest rate environment where the shorter-term yields are higher than the longer-term yields - a possible indicator of an upcoming recession. A flat yield curve happens when the shorter- and longer-term yields are close, indicating a potential economic transition. On any type of curve, the yield elbow is the highest point.

RELATED TERMS
  1. Yield

    The income return on an investment. This refers to the interest ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Bond

    A debt investment in which an investor loans money to an entity ...
  5. Running Yield

    The annual income on an investment divided by its current market ...
  6. Class 3-6 Bonds

    Several classes of noninvestment grade bonds held by an insurance ...
Related Articles
  1. Corporate Bonds: An Introduction To ...
    Bonds & Fixed Income

    Corporate Bonds: An Introduction To ...

  2. Do Money-Market Funds Pay?
    Options & Futures

    Do Money-Market Funds Pay?

  3. Interest Rates And Your Bond Investments
    Investing Basics

    Interest Rates And Your Bond Investments

  4. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

comments powered by Disqus
Hot Definitions
  1. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  2. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  3. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  4. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  5. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  6. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
Trading Center