Humped Yield Curve

Huh, that’s weird...usually interest rates on medium-term securities aren’t higher than interest rates for long-term and short-term securities.

You know what that means: we’ve got a humped yield curve.

The yield curve is a graph showing the yields of different bonds by their time to maturity, ranging from short-term (a few months) to long-term (years...like 30 of 'em). A humped yield curve is when the yield curve looks like a bell curve. It’s a pretty rare situation where interest rates are highest for medium-term securities (one to 10 years) compared to short-term and long-term securities.

Normally, the yield curve shows long-term bonds with the highest yields, as investors are expected to get paid for holding on to a bond for longer. When medium-term bonds trump long-term bonds in payout, it means holding bonds long-term isn’t being rewarded the same as per usual.