when the yield on intermediate term bonds is higher than the yield on both short term and long term bonds the shape of the curve becomes humped a humped yield curve at shorter maturities has a positive slope and then a negative slope as maturities lengthen resulting in a bell shaped curve in effect a market with a humped yield curve could see rates of bonds with maturities of one to 10 years trumping those with maturities of less than one year or more than 10 years 
humped vs regular yield curvesas opposed to a regularly shaped yield curve in which investors receive a higher yield for purchasing longer term bonds a humped yield curve does not compensate investors for the risks of holding longer term debt securities for example if the yield on a 7 year treasury note was higher than the yield on a 1 year treasury bill and that of a 20 year treasury bond investors would flock to the mid term notes eventually driving up the price and driving down the rate since the long term bond has a rate that is not as competitive as the intermediate term bond investors will shy away from a long term investment this will eventually lead to a decrease in the value of the 20 year bond and an increase in its yield types of humpsthe humped yield curve does not happen very often but it is an indication that some period of uncertainty or volatility may be expected in the economy when the curve is bell shaped it reflects investor uncertainty about specific economic policies or conditions or it may reflect a transition of the yield curve from a normal to inverted curve or from an inverted to normal curve although a humped yield curve is often an indicator of slowing economic growth it should not be confused with an inverted yield curve an inverted yield curve occurs when short term rates are higher than long term rates or to put it another way when long term rates fall below short term rates an inverted yield curve indicates that investors expect the economy to slow or decline in the future and this slower growth may lead to lower inflation and lower interest rates for all maturities 