Bond Yield
The return an investor earns by holding a bond — driven by its price, coupon, and time to maturity. Moves inversely with price.
Bond yield is the annual return an investor earns from a bond relative to its current market price. Unlike the coupon rate (fixed at issuance), yield fluctuates continuously as bond prices move in the secondary market.
The critical relationship: when bond prices rise, yields fall; when prices fall, yields rise. This inverse relationship is fundamental to understanding how monetary policy and market sentiment interact with all asset classes.
Traders monitor Treasury yields as the real-time pricing of Fed policy expectations and inflation outlook. Rising yields tighten financial conditions even before the Fed acts — higher borrowing costs ripple through mortgages, auto loans, and corporate debt immediately.
Related Terms
Basis Point
One hundredth of one percentage point (0.01%) — the standard unit for quoting changes in interest rates, yields, and credit spreads.
BeginnerBond
A debt instrument in which the issuer borrows money from the buyer and promises to pay periodic interest plus return the principal at maturity.
BeginnerBreakeven Inflation Rate
The inflation rate at which a nominal Treasury and a same-maturity TIPS deliver equal returns — the market's priced-in inflation expectation.
AdvancedBudget Deficit
When government spending exceeds tax revenue in a given year, the gap must be financed by issuing new debt — adding to the national debt.
BeginnerConvexity
The curvature in the price-yield relationship of a bond — measuring how duration itself changes as yields move, improving accuracy of price change estimates.
AdvancedCoupon
The fixed annual interest payment made by a bond issuer to the bondholder, expressed as a percentage of face value.
BeginnerCredit Spread
The yield difference between a corporate (or other non-government) bond and a Treasury of the same maturity — the market's price for credit risk.
IntermediateCurrent Yield
A bond's annual coupon payment divided by its current market price — a simple but incomplete measure of yield that ignores capital gain or loss.
IntermediateDuration
A measure of a bond's sensitivity to interest rate changes — the approximate percentage price change for a 1% move in yield.
AdvancedFace Value (Par)
The nominal value of a bond that the issuer promises to repay at maturity — typically $1,000 for U.S. bonds.
BeginnerInterest Rate
The cost of borrowing money, set or influenced by central banks — the single most powerful lever in macroeconomics.
BeginnerMunicipal Bond
Debt issued by U.S. states and local governments, whose interest is typically exempt from federal (and sometimes state) income tax.
IntermediateNational Debt
The total accumulated stock of government borrowing — the sum of all past budget deficits minus surpluses, financed through outstanding bonds.
IntermediateNominal Yield
A bond's stated yield without adjusting for inflation — the face-value return before accounting for the erosion of purchasing power.
IntermediateOn-the-Run vs Off-the-Run
On-the-run is the most recently auctioned, most liquid Treasury at each maturity; off-the-run are older issues that trade at a slightly higher yield.
AdvancedPrice-Yield Inverse Relationship
The fundamental bond market law: when yields rise, bond prices fall; when yields fall, bond prices rise — always and mechanically.
BeginnerQuantitative Easing
A Fed policy of purchasing Treasury bonds and MBS to inject liquidity, lower long-term yields, and stimulate the economy when short rates are near zero.
IntermediateQuantitative Easing (QE)
A central bank's large-scale asset purchases that inject liquidity into the system and push down long-term interest rates.
IntermediateQuantitative Tightening (QT)
A central bank's deliberate shrinkage of its balance sheet by allowing bonds to mature without reinvestment, draining liquidity from the system.
AdvancedReal Yield
A bond's nominal yield minus expected inflation — the true inflation-adjusted return a bondholder earns for lending money.
AdvancedT-Note
U.S. Treasury notes with maturities of 2, 3, 5, 7, or 10 years, paying semi-annual coupon interest — the most widely traded government securities.
IntermediateTapering
The gradual reduction in the pace of a central bank's asset purchases — a step toward tightening that precedes rate hikes and signals the end of QE.
IntermediateTIPS
U.S. Treasury bonds whose principal adjusts with CPI, so the investor is repaid in inflation-protected dollars and earns a real yield.
IntermediateTreasury
U.S. government debt securities issued by the Department of the Treasury — the global benchmark for risk-free rates and the deepest bond market in the world.
BeginnerTreasury Security
Debt issued by the U.S. federal government through the Treasury Department — the benchmark risk-free asset in global finance.
BeginnerYield to Maturity
The total annualized return an investor earns if they hold a bond to maturity — accounting for coupon payments, price paid, and time remaining.
IntermediateYield to Worst (YTW)
The lowest yield a bond can deliver across all its possible redemption scenarios — the conservative return assumption for callable bonds.
Intermediate