Investing term
What is Yield?
The effective return a bond pays right now, given its market price — not its coupon alone.
Yield is the effective return a bond pays right now given its current market price — not just its fixed coupon. Because a bond's price moves in the market while its coupon stays fixed, the yield rises when the price falls and falls when the price rises. A $50 coupon is a 5% yield at a $1,000 price but a 5.6% yield if the price drops to $900.
Yield lets you compare the real income from bonds trading at different prices, which the coupon alone can't tell you. It's why bond investors watch yields rather than coupons, and why 'yields rose' and 'bond prices fell' mean the same thing. The same idea extends to other income assets — a stock's dividend yield is its annual dividend divided by its share price.
A bond's coupon is fixed, so when its price falls the yield rises — a $50 coupon is 5% at $1,000 but 5.6% at $900. It's why rising rates hurt bonds and why a soaring yield can be a warning.
For example
A bond with a $50 coupon trading at $1,000 yields 5%, but if its price drops to $900 the same $50 coupon is now a 5.6% yield.
Learn it by doing
That's Yield in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 4, Stocks, Bonds, Cash & Alternatives).
Try the free lesson →Why it matters to you
Yield matters because it's the true, comparable measure of income across investments trading at different prices — the number that actually reflects what you earn, not what was promised at issue. Its inverse relationship with price is also one of the most important ideas in investing: it's why rising interest rates hurt existing bonds, and why a soaring dividend yield can be a warning sign that the price has crashed rather than a gift.
⚠ Treating a high yield as pure good news
A rising yield often means a falling price — and the price may be falling for a reason. An unusually high bond yield can signal rising default risk, and a sky-high dividend yield can mean the market expects a cut. Yield tells you the income relative to price, but always ask why it's high before treating it as a bargain.