Bond Yield

Bond yield is the return an investor gets from a bond, usually as a percentage of its price.

Common confusion

When bond prices rise, yields fall, and vice versa; the two always move opposite.

Why it matters

It lets you compare bonds of different prices and coupons on equal ground.

A real-world scenario

The Federal Reserve raises rates, and a 10-year Treasury that was issued at 3% when rates were low now trades at a discount. New buyers can pick it up at 92 cents on the dollar, which lifts its yield to roughly 3.9% and makes it competitive with newly issued bonds. The investor who bought at par watches the price fall but still collects the same coupons — and if they hold to maturity, gets back the full $1,000. This is the scenario that confuses beginners: a bond that looks like a loser on paper is actually fine if held to maturity.

Worked example

How investors use it

Beware the difference between current yield and yield to maturity. YTM also counts the gain or loss from buying at a discount or premium and holding to maturity, so it is the number that actually describes your return.

Key takeaway

The inverse relationship between bond price and yield is the one rule of fixed income you cannot forget. A bond’s coupon is a fixed contract, so the market adjusts the effective return by moving the price, and yields fall as prices rise and vice versa. When you compare bonds, use yield to maturity rather than the coupon or the current yield, because it captures the full picture including any gain or loss at maturity. The direction of rates decides the direction of bond prices.

Definitions reviewed by the Investing Glossary editorial team.