Bond Yield

Bond yield represents the income return on a bond investment, and it can be measured in several ways. The coupon yield is the annual interest payment divided by the face value. The current yield divides the annual coupon by the current market price. Yield to maturity is the most comprehensive measure, accounting for the purchase price, face value, coupon rate, and time remaining until maturity.

Bond yields and bond prices move in opposite directions. When interest rates rise, existing bonds with lower coupon rates become less attractive, so their prices fall and their yields increase. Conversely, when rates drop, existing bonds with higher coupons become more valuable, driving prices up and yields down.

Investors use bond yields to compare the relative value of different fixed-income investments and to assess the overall health of the economy. The 10-year Treasury yield is a particularly important benchmark, influencing mortgage rates, corporate borrowing costs, and stock market valuations. Understanding bond yields is essential for anyone building a diversified investment portfolio.