Bond yield

A bond's yield expresses its income as a percentage of what you pay for it, rather than of its face value. The simplest measure, current yield, divides the annual coupon by the market price. Because the coupon is fixed, price and yield move in opposite directions: if the price falls, the same coupon represents a higher percentage of the lower price, so the yield rises. When commentators say bond yields rose, they mean bond prices fell. The fuller measure, yield to maturity, also counts any gain or loss between the price paid and the face value repaid at maturity.

Yields are how the bond market sets prices. Existing bonds reprice until their yields line up with those on newly issued bonds of similar risk and maturity, which is why changes in central bank rates and inflation expectations flow straight through to bond prices. Yields also act as a benchmark for other assets: a higher yield on safe government bonds raises the return investors demand from shares and property. A high yield is not free money. It usually reflects higher perceived risk, a longer maturity, or both.