Bond Yield
Bond yield is the return an investor earns from a bond, expressed as a percentage. Yield and bond price move in opposite directions: when bond prices fall, yields rise, and vice versa.
Why it matters
- Yield reflects both the bond's fixed coupon payment and its current market price.
- Rising interest rates tend to push bond yields up and existing bond prices down.
- Higher-yielding bonds (like high-yield/junk bonds) usually carry more credit risk, not just better returns.
Simple example
- A bond with a $1,000 face value and $40 annual coupon has a 4% coupon rate — but its yield changes as its market price changes.
- If that bond's price falls to $900, its yield rises above 4%, since the same $40 payment is now a larger percentage of the price paid.