Normal and inverted yield curves will change shape — becoming steeper or flatter — over time.

From time to time the yield curve will take a "humped" or "cupped" shape, as shown in Figure 2. A humped yield curve occurs when the five-year yield is higher than both the two-year and the 10-year yields. A cupped yield curve occurs when the five-year yield is lower than both other yields.

Because "normal" is the default yield curve configuration, one opportunity lies in trading the return of a cupped yield curve, such as the present one, to normal. When this happens the twos-to-fives segment must steepen (i.e., the twos-to-fives spread must widen) while the fives-to-10s segment must flatten (or the fives-to-10s spread must narrow). It is a mistake in this situation to overlook the five-year point on the yield curve.

Perhaps the most effective way to trade a cupped yield curve is to use the "yieldcurve butterfly spread."