Economy and interest rates · updated October 21, 2026
What is a bond's yield and how is it calculated
The yield shows what percentage per year you earn from a bond, compared with the price you pay for it today. Price and yield move in opposite directions: when a bond's price falls, the yield for whoever buys it now goes up.
The bond yield formula
- Annual coupon
- The fixed interest paid per year, in money.
- Price
- What the bond costs on the market today, which can be below or above its face value.
- Yield to maturity
- The full version: it also adds the gain or loss up to the face value, received at maturity.
Worked example
A bond with a face value of $1,000 pays a $50 coupon a year. On the market it now costs $950.
The coupons give 5.26% a year. At maturity you also get an extra $50 ($1,000 instead of $950), so the yield to maturity is even higher.
How to read the bond yield
The 10-year government bond yield is the most watched: it is the base for mortgage rates and for valuing stocks. When it rises fast, stocks usually fall.
When the bond yield can fool you
A high yield means higher risk: the market demands more from issuers it worries about. The price changes: if you sell before maturity, you can lose money even if the bond is fine, because rates have gone up.
Related terms
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Questions about the bond yield
Why do bond prices fall when interest rates rise?
Because new bonds pay bigger coupons. To find buyers, the old ones with small coupons have to sell cheaper.
What is yield to maturity?
The total yearly return if you hold the bond until maturity: the coupons plus the difference between the price paid and the face value received at the end.
These explanations are for information only. They are not a recommendation to buy or sell.
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