BNET Business Dictionary
Business Definition for: Bond Yield
- the annual return on a bond (the rate of interest) expressed as a percentage of the current market price of the bond. Bonds can tie up investors' money for periods of up to 30 years, so knowing their yield is a critical investment consideration.
Example: Bond yield is calculated by multiplying the face value of the bond by its stated annual rate of interest, expressed as a decimal. For example, buying a new ten-year $1,000 bond that pays 6% interest will produce an annual yield amount of $60:1,000 x 0.060 = 60The $60 will be paid as $30 every six months. At the end of ten years, the purchaser will have earned $600, and will also be repaid the original $1,000. Because the bond was purchased when it was first issued, the 6% is also called the yield to maturity.
This basic formula is complicated by other factors. First is the "time-value of money" theory: money paid in the future is worth less than money paid today. A more detailed computation of total bond yield requires the calculation of the present value of the interest earned each year. Second, changing interest rates have an impact on bond trading and, ultimately, on yield. Changes in interest rates cannot affect the interest paid by bonds already issued, but they do affect the prices of new bonds.
Additional Resources
- Bond Yield Calculator
- The Bond Yield Calculator for Excel or OpenOffice Calc enables the automatic generation of scheduled bond payments and the calculation of resulting yield to maturity. The model is equipped to handle 'odd' first time periods and is ideal to speed up bond payment and yield calculations. ...
- Tools & templates 2008-01-01
- Bond Yield Calculator
- This bond yield calculator can help you figure out the current bond yield as well as the bond yield to maturity. The calculator requires several inputs including the current bond price, par value, coupon rate and years until maturity.
- Tools & templates 2008-01-01
- Ten-year bond yield best in years.
- Byline: Jacob Saulwick May 27, 2007 (The Sydney Morning Herald - ABIX via COMTEX) -- The 10-year government bond yield in Australia has risen beyond 6, the highest level since mid-2004. The trend is associated with investors moving out of bond markets into the...
- Research articles 2007-05-27
- The mystery of the missing bond yield.(United States)(Brief Article)
- Sep 29, 2004 (The Australian Financial Review - ABIX via COMTEX) Bond yields in the US have fallen steadily over recent months, despite three rises in US interest rates. In late September 2004, the 10-year bond yield dropped below four per cent. At the beginning...
- Research articles 2004-09-29
- Steep Bond Yield Signals Strength in Equities
- FP Trading Desk submits: When it comes to the steepening bond yield, Vincent Delisle says bring it on. "Steep yield curves are positive for equities and profits, but steepening curves even more so," said the Scotia Capital strategist in a note to clients. by FP Trading Desk
- External links 2009-06-10
- News: ABN Amro calls peak of bond yield curve.
- Bond yields are set to fall and yield curves will flatten in 2005 as global economic growth slows, according to research produced by ABN Amro. Bond yields are set to fall and yield curves will flatten in 2005 as global economic growth slows, according...
- Research articles 2004-09-20
- Can Structural Models Price Default Risk? New Evidence From Bond and Credit Derivative Markets
- Using a set of structural models, this paper evaluates bond yield spreads and the price of default protection for a sample of US corporations. Theory predicts that if credit risk alone explains these two quantities, their magnitudes should be similar. The findings concur with previous results that bond yield spreads...
- White papers 2005-01-27
- T-bond yields proving hard to resist.
- Jul 31, 2003 (The Australian Financial Review - ABIX via COMTEX) International investors returned to the US bond market on 31 July 2003, attracted by the high 10-year Treasury yields. The 10-year bond yield has risen to its highest level in a year, at 4.43...
- Research articles 2003-08-01
- Falling bond rates inflate DB plan liabilities
- Low interest rates are substantially inflating government-mandated liability calculations for defined benefit plans, leading employer groups to press Congress for a fix. Pension plan sponsors are experiencing rapidly growing liabilities in their plans due to a continued fall in the 30-year Treasury bond yield used to calculate minimum funding...
- Research articles 2001-12-01
- Beware buoyancy in bond markets.
- Jul 16, 2003 (The Mercury - ABIX via COMTEX) Australian bond yields increased by more than 0.25 on 16 July 2003. The Commonwealth Government May 2013 bond yield increased to 5.35 and the US 10-year yield rose to 3.98 after the Federal Reserve Board ...
- Research articles 2003-07-16
- Bond Spreads
- The term bond spreads or spreads refer to the interest rate differential between two bonds. Mathematically, a bond spread is the simple subtraction of one bond yield from another. Bond spreads are the common way that market participants compare the value of one bond to another, much like price-earnings ratios...
- White papers
- Treasury Yield Watch: How Steep Is My Valley?
- Sudden Debt submits: The steepness of the US Treasury bond yield curve is once again reaching 30+ year record levels; the difference between 10- and 2-year yields is currently at 222 basis points, having previously nearly matched the record 270 bp of 2003 and 1992 (see chart below, click to...
- External links 2009-05-05
- 9: Bond yield hits plans.(pension plan interest rate effects)(Brief Article)
- Employers with defined benefit pension plans will pay dearly as a result of this year's plunge in U.S. Treasury bond interest rates. Next year, employers will have to pump tens of billions of extra dollars into their pension plans, not because the Employers...
- Research articles 2001-12-24
- Miscommunication Shook Up Mortgage, Bond Markets
- WHAT THE FED SAID / WHAT THE MARKETS HEARDMortgage interest rates dipped to record lows early last summer, providing homeowners with a refinancing bonanza.This decline in mortgage interest rates mirrored a fall in the 10-year Treasury bond yield the interest rate on the bond, as shown in the left panel...
- Research articles 2004-04-01
- Bond yield drop pushes stocks higher
- NEW YORK -- Stock prices rallied to their highest in 43/4 years Tuesday as a sharp drop in bond yields rekindled hopes that the Federal Reserve will stop raising interest rates sooner than feared. Investors have been fretting about rising bond yields, so they welcomed signs of a not-too-hot...
- Research articles 2006-03-15
- International Long-Term Government Bond Yields
- Hickey and Walters Bespoke submit: With all the concerns over the health of the global financial system, we were somewhat surprised to see that Australia is the only country whose 10-year government bond yield is at its lowest level of the credit crisis. It appears as though the prospect...
- External links 2008-10-27
- USA: SELL OFF IN TREASURIES WILL INCREASE 10 YEAR BOND YIELDS BY 65 BASIS POINT WITHIN A YEAR.(Brief Article)
- Forecast by Dr. Gil Feiler from Info Prod Research reveals bearish outlook to the USD against major currencies as well as hiking in gold prices. According to his forecast a year from now the 10 year government bond yield will increase by about 65 basis point to...
- Research articles 2005-03-20
- J.P. Morgan Investment Management Inc., Putnam Investments To Provide Municipal Bond Yields to TheConsensus.com Daily Benchmark
- Business Editors, Financial Writers BOSTON--BUSINESS WIRE--Feb. 24, 2000 J.P. Morgan Investment Management Inc. and Putnam Investments are the latest firms to agree to contribute municipal bond yield data to TheConsensus.com, an Internet-based advisory service that has established a new industry-wide benchmark for municipal securities....
- Research articles 2000-02-24
- Higher Yield, Safe Returns: Best Investment Bets
- Money-market funds are now paying next to nothing. Boost your returns by moving some cash into higher-yielding but still relatively safe dividend stocks or bond funds. Here are five stocks and five funds that we like. ...
- Articles 2009-08-13
- Assessing the Current Price of a Bond
- The current price of a bond is the amount investors are prepared to pay for it, which in practice will be somewhere between the bid price and the asking price.Investors can check current prices to gauge how much a particular bond might cost them. They can also track changes in...
- Articles 2007-10-09
