Bond Yeild

An annual amount which is given to you in the interest from a bond is called bond yield, as a percentage of the bond’s initial cost.
It is the premium which is paid to the investors for holding on to government or corporate debt.
Bond yield is used to compare the potential returns of all kinds of bonds.
A bond is basically is a loan and act like a local bank receives for interest on the loans which is given by the bank to them.
The bond yields assure the confidence on the investors which is why the traders focus on them.
Bond yields attract more buyers if the bond demand is weak.
On the other side, Low bond yields usually indicate that there is a high demand from investors, either because they believe they will be paid on maturity or because they feel it is a safe palce and it will keep their assets.
The interest rate to be paid by bond issuer is called a coupon and it is fixed, but the yield varies because the formula depends on the market price of the bond.
For example, if you pay $100 for a 5% interest rate bond, the yield you get will be 5%.
But if you buy the same bond for $88, the yield will be about 5.7%.
This figure is called current yield output.
It is based on market value and is most commonly used by investors to compare bonds.
Here are other types of bond yields.

  • Nominal yield: It is the interest paid out divided by the bond’s face (original) value.

  • Yield to maturity: It shows the average yield you can expect bond if you hold it until it reaches the end of its term.

 

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