What is a bond yield? Coupons, prices and yield to maturity in plain English
By SendPay Business · · 2 min read
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A bond yield is the return an investor gets from a bond, shown as a percentage a year. It depends on the interest the bond pays and on the price paid for it, which is why a bond's yield changes every time its price moves.
The parts of a bond
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Face value
the amount the issuer pays back at the end, often 100.
Coupon
the fixed interest paid on the face value, usually once or twice a year.
Maturity
the date the face value is paid back.
Price
what the bond costs to buy today, which can be above or below its face value.
Current yield
The simplest measure is the yearly coupon divided by the price. A bond paying 4 a year that costs 95 has a current yield of about 4.2%.
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Yield to maturity
Yield to maturity also counts the difference between the price paid and the face value returned at the end. Buy below face value and that gain adds to the yield; buy above it and the loss takes some away. It is the fuller measure of what the bond returns if held to the end and every payment is made.
Why prices and yields move in opposite directions
A bond's coupons are fixed. When interest rates rise, new bonds pay more, so older ones have to fall in price until their yield matches. When rates fall, older bonds with higher coupons become worth more.
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Questions people ask
How do I work out a bond's yield to maturity?
Enter the coupon, price and years left into the free calculator.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.