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. Bond

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

    The income return on an investment. This refers to the interest ...
  3. Interest Rate

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

    A line that plots the interest rates, at a set point in time, ...
  5. Running Yield

    The annual income on an investment divided by its current market ...
  6. Accelerated Return Note (ARN)

    A short- to medium-term debt instrument that offers a potentially ...
RELATED FAQS
  1. What is the relationship between the current yield and risk?

    The general relationship between current yield and risk is that they increase in correlation to one another. A higher current ... Read Full Answer >>
  2. How does the bond market react to changes in the Federal Funds Rate?

    The bond market is highly sensitive to changes in the federal funds rate. When the Federal Reserve increases the federal ... Read Full Answer >>
  3. How do I use the holding period return yield to evaluate my bond portfolio?

    The holding period return yield formula can be used to compare the yields of different bonds in your portfolio over a given ... Read Full Answer >>
  4. What is the relationship between current yield and yield to maturity (YTM)?

    Both the current yield and yield to maturity (YTM) formulas are methods of calculating the yield of a bond. However, these ... Read Full Answer >>
  5. What is a 'busted' convertible bond?

    In finance, a convertible bond represents a hybrid security that offers debt and equity features and risks. While a convertible ... Read Full Answer >>
  6. How can I use the holding period return yield to determine whether or not I should ...

    Use the holding period return yield formula to determine whether the time is right to sell your bond. With this calculation, ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Corporate Bonds: An Introduction To Credit Risk

    Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy.
  2. Options & Futures

    Do Money-Market Funds Pay?

    This investment provides security, but its returns may not be adequate for long-term investors.
  3. 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.
  4. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  5. Fundamental Analysis

    Present Value Interest Factor of Annuity (PVIFA)

    PVIFA can be used to calculate the present value of a series of annuities by considering cash flows and depreciation.
  6. Investing Basics

    Explaining Bond Ratings

    A bond rating is a grade given to a bond to indicate its creditworthiness.
  7. Investing Basics

    How To Create Capital Protected Investment Using Options?

    Does "Capital-Protection" guarantee in an investment product sound attractive? Wait! Here's how you can create a better one for yourself, at low-cost!
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Total Bond Market

    Learn about the Vanguard Total Bond Market exchange-traded fund, its primary portfolio holdings and risk/reward profile based on its past performance.
  9. Bonds & Fixed Income

    Dodd-Frank Creates a Liquidity Crunch for Bonds

    While each individual institution is undoubtedly safer due to capital constraints imposed by Dodd-Frank, this makes for a more illiquid market overall. The lack of liquidity will be especially ...
  10. Fundamental Analysis

    20-Year Treasury Bond ETF Trading Strategies

    iShares 20-Year Treasury Bond ETF offers a highly liquid equity alternative to direct bond exposure.

You May Also Like

Hot Definitions
  1. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  2. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  3. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  4. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  5. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  6. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!