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What is bond yield?
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Bond yield is the return an investor receives from holding a bond. It represents the income generated from the bond relative to its price. Bond yields are usually expressed as a percentage per year.
Bond yield shows the effective return investors earn from a bond.
When an investor buys a bond, they typically receive regular interest payments, known as coupon payments. The yield reflects how attractive the bond is compared to its market price.
If bond prices rise, the yield usually falls because the fixed interest payments represent a smaller percentage of the higher price. If bond prices fall, the yield increases. Bond yields are closely watched by investors because they influence borrowing costs, investment decisions, and financial market conditions.
Short example:
Suppose a bond has a face value of $1,000 and pays $50 in interest each year.
If the bond is purchased for $1,000, the yield is 5 percent.
If the market price of the bond rises to $1,100, the $50 interest payment now represents a lower return, reducing the yield. If the bond price falls to $900, the same $50 payment results in a higher yield.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
