Bond yields

Understand the idea

For a fixed coupon bond, a lower price generally implies a higher yield, all else equal. Current yield divides annual coupon payments by price; yield to maturity also accounts for repayment and timing. Neither measure guarantees realized returns if the bond is sold early or the issuer defaults.

An example

A bond paying 50 a year and priced at 1,000 has a current yield of 5%.

Connected ideas

• Possible economic mechanismInterest rates

  Market rates affect the prices investors will pay for existing bonds.

• Related measure or componentYield curve

  A yield curve compares yields at different maturities.

In the news

No published articles using this entry yet.