Yield Elbow

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.

BREAKING DOWN '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. Flat Yield Curve

    A yield curve in which there is little difference between short-term ...
  2. Normal Yield Curve

    A yield curve in which short-term debt instruments have a lower ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments ...
  4. Yield Curve Risk

    The risk of experiencing an adverse shift in market interest ...
  5. Term Structure Of Interest Rates

    The relationship between interest rates or bond yields and different ...
  6. Negative Butterfly

    A non-parallel yield curve shift in which long- and short-term ...
Related Articles
  1. Investing

    Trade Bond ETFs Using Yield Curves

    Different types of yield curves provide important insights for trading bond-based securities.
  2. Investing News

    U.S. Recession Without a Yield Curve Warning?

    The inverted yield curve has correctly predicted past recessions in the U.S. economy. However, that prediction model may fail in the current scenario.
  3. Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

    Find out what happens when short-term interest rates exceed long-term rates.
  4. Investing Basics

    Understanding the Inverted Yield Curve

    An inverted yield curve occurs during the rare times when short-term interest rates are higher than long-term interest rates.
  5. Investing Basics

    Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  6. Bonds & Fixed Income

    Yield Curve

    Learn more about how this curve is used to predict changes in economic output and growth.
  7. Bonds & Fixed Income

    Bond Yields: Current Yield And YTM

    A bond's current yield, also called "bond yield," is the interest it pays annually divided by the bond's price. A stock's current yield, also called "dividend yield," is the sum of its annual ...
  8. Investing

    Understanding the Different Types of Bond Yields

    Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment.
  9. Bonds & Fixed Income

    Interest Rates, Inflation and the Bond Market

    Interest rates, bond prices and inflation all have an impact on one another.
  10. Bonds & Fixed Income

    Advanced Bond Concepts: Yield and Bond Price

    In the last section of this tutorial, we touched on the concept of required yield. In this section we'll explain what this means and take a closer look into how various yields are calculated. ...
RELATED FAQS
  1. What are the different formations of yield curves?

    Find out more about the yield curve and yield curve formations, what yield curves measure and the three main types of yield ... Read Answer >>
  2. Why are the term structure of interest rates indicative of future interest rates?

    Learn why economists believe the term structure for interest rates reflects investor expectations for future interest rates ... Read Answer >>
  3. What does the yield curve actually predict?

    Find out what an inverted yield curve represents, how it has performed as a leading indicator and why it appears to hold ... Read Answer >>
  4. What is the difference between the Daily Treasury Long-Term Rates and the Daily Treasury ...

    Find out more about the daily Treasury long-term rates, daily Treasury yield curve rates and the difference between these ... Read Answer >>
  5. What is the correlation between term structure of interest rates and recessions?

    Discover the importance of the term structure of interest rates, also known as the yield curve, and its predictive power ... Read Answer >>
  6. How can I create a yield curve in Excel?

    Find out more about the yield curve, what the yield curve is and how to create the yield curve for U.S. Treasury bonds using ... Read Answer >>
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center