Bond yield
Family IX · Macro
Not to be confused with yield curve.
Bond yield measures the income a bond generates relative to its price or face value. It is not the same as the bond's coupon rate, because yield changes as the bond's market price moves. Yield is a core input for comparing fixed-income securities and for assessing broader interest-rate conditions.
Yield versus coupon
The coupon rate is fixed at issuance and is calculated on the bond's face value. Yield, by contrast, depends on the price paid for the bond. When a bond trades below face value, its yield is higher than its coupon; when it trades above face value, its yield is lower. The most common measure is yield to maturity, which assumes the bond is held until redemption and all coupons are reinvested at the same rate.
Worked example
Why yield matters
Yield allows direct comparison between bonds with different coupons, prices and maturities. It also reflects the compensation investors demand for holding a bond, including compensation for expected inflation, credit risk and liquidity. Because yields move inversely to prices, a rise in market yields reduces the market value of existing bonds.
Often confused with
- yield curve
- A bond yield is a single number for one bond, while the yield curve plots yields across many maturities to show the term structure of interest rates; the visible sign is that the curve is a graph with maturity on the horizontal axis, not a single percentage.
See also
- basis point
- central bank
- commodity currency
- consumer price index
- currency devaluation
- currency intervention