| Definition |
The return an investor expects to earn from a bond, expressed as a percentage. |
The current market value or price at which the bond is trading. |
| Measurement |
Expressed as an annual percentage rate (e.g., yield to maturity, current yield). |
Expressed in currency units (e.g., $950, ₹1020). |
| Relation to Each Other |
Inversely related to bond price; as price rises, yield falls and vice versa. |
Inversely related to bond yield; as yield rises, price falls and vice versa. |
| Calculation Basis |
Calculated based on coupon payments, purchase price, and time to maturity. |
Determined by supply and demand in the bond market. |
| Types |
Current yield, yield to maturity (YTM), yield to call (YTC), yield to worst (YTW). |
Clean price (excluding accrued interest), dirty price (including accrued interest). |
| Impact of Interest Rates |
Yields rise when market interest rates increase. |
Prices fall when market interest rates increase. |
| Investor Perspective |
Indicates potential income and return on investment. |
Shows cost or value of acquiring the bond. |
| Market Behavior |
Used to compare returns among different bonds. |
Fluctuates daily based on market demand and interest rate changes. |
| Risk Indication |
Higher yields often indicate higher risk (credit risk or interest rate risk). |
Price volatility reflects perceived risk and liquidity. |
| Example |
A bond with a coupon of 5% bought below par will have a yield higher than 5%. |
A bond priced above its face value is said to be trading at a premium. |
| Role in Bond Valuation |
Used in discounting future cash flows to estimate bond price. |
Result of the present value calculation of future cash flows. |
| Fixed Income Investment |
Helps investors understand expected income. |
Reflects market sentiment and supply-demand dynamics. |
| Investor Strategy |
Investors buy when yields are attractive relative to risk. |
Investors seek favorable price points to maximize gains. |
| Tax Impact |
Yield may be impacted by tax treatment of interest income. |
Capital gains/losses arise from price changes upon sale. |
| Duration Influence |
Longer duration bonds show greater yield sensitivity to interest rate changes. |
Price volatility increases with bond duration. |
| Use in Portfolio |
Yield helps in income planning and comparing bond returns. |
Price impacts portfolio valuation and market timing decisions. |
Bond Yield vs Bond Price