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Bonds & RatesGlossary

Yield

Yield is the return an investment pays relative to its price. For bonds, it rises when the price falls. Plain-English definition, an example and related terms.

Also called: bond yield, current yield, yield to maturity

By The Token Thesis Desk2 min read4 cited sources

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Quick answer

Yield is the return an investment pays relative to its price, shown as a yearly percentage. For a bond, the simplest version is the yearly coupon divided by the price. Because the coupon is fixed, the yield rises when the price falls.

What does yield mean?#

Investor.gov defines yield as the annual percentage rate of return earned on a bond, calculated by dividing the coupon interest by its purchase price[1]. The St. Louis Fed describes bond yield more broadly as the average return from owning a bond, which depends on the price paid, the coupon payments and the time to maturity[2].

The first definition is what FINRA calls current yield: the coupon divided by the current market price[3]. The broader one is closer to yield to maturity, the overall rate earned by someone who buys at the market price and holds until maturity[3].

What does yield look like with real numbers?#

Worked example

A bond paying $40 a year at three prices

Take a $1,000 bond with a 4% coupon ($40 a year, paid twice a year) and six years left. At $950 the current yield is 4.21% and the yield to maturity 4.97%, because you also gain $50 at maturity. At $1,050 the current yield is 3.81% and the yield to maturity 3.08%.

Price paidCurrent yieldYield to maturity
$950 (below face value)4.21%4.97%
$1,000 (at face value)4.00%4.00%
$1,050 (above face value)3.81%3.08%

Figures computed in code from the stated inputs; rounded to the nearest cent or tenth.

FINRA sums up the pattern: price and yield are inversely related — as a bond's price goes up its yield goes down, and vice versa[3].

Where will you see this term?#

You will meet the word in bond quotes and in news about Treasury yields; the Federal Reserve publishes daily Treasury yields by maturity in its H.15 release[4]. Stocks have a related idea, dividend yield. For the different bond yield measures, read bond yield explained; to see why yields and prices move opposite ways, read why bond prices fall when rates rise; to work out your own numbers, use the bond yield calculator.

Sources

Numbers in brackets in the text point here. Grade A = primary source (regulator, statistics agency, law or official document).

  1. 1
    Yield (glossary)U.S. SEC — Investor.gov (n.d.) · Grade A
  2. 2
  3. 3
  4. 4
    H.15 Selected Interest Rates (Daily) — release of October 2, 2026Board of Governors of the Federal Reserve System (2026) · Grade A

How we checked this note

Every number, date and rule above links to its source. This note cites 4 sources, 4 of them primary (Grade A). Worked examples were calculated in code, and a second editor compared each figure with its source before publishing. Spotted an error? Tell us — corrections are listed on the note. Read our editorial policy.