What is a bond yield?
In one line: A bond yield is the yearly return a bond pays, shown as a percentage of the bond's current price.
A simple example with numbers
A bond is a loan. You lend $1,000 to the US government, and it pays you interest until it gives the $1,000 back.
Say the bond pays $40 a year (a 4% coupon). If you pay $1,000 for it, your yield is 40 ÷ 1,000 = 4.0%.
Now new bonds start paying 4.5%. Nobody will pay $1,000 for your 4% bond anymore. Its price falls to about $950. At that price, the $40 a year is 40 ÷ 950 = 4.2%.
The key rule
Bond prices and yields move in opposite directions. Price down, yield up. Price up, yield down. Always.
Why traders watch yields
The 10-year US Treasury yield is one of the most watched numbers in finance. It feeds into mortgage rates, company borrowing costs and how investors value stocks.
- Rising yields can weigh on stocks, especially fast-growing companies, because future profits are worth less today. Our guide on how interest rates affect stocks explains this.
- Rising US yields often support the US dollar, since dollar savings pay more. USD/JPY is especially sensitive.
- Gold pays no interest, so higher yields make holding it less attractive.
Traders can trade Treasury prices directly with futures like the 10-year T-note (ZN).
What moves yields
- The Central bank's rate decisions and its hints about future ones (see FOMC)
- Inflation data like the CPI report
- Jobs data and growth data
- How much the government needs to borrow
A common mistake
Mixing up "yields up" with "bonds up." A headline saying "bonds sold off" means prices fell and yields rose. Read which one a headline means before you connect it to your chart.
Questions
Where can I see the 10-year Treasury yield?
Most charting apps show it. On TradingView, search "US10Y." The US Treasury and the Federal Reserve also publish yield data.
What is the difference between a coupon and a yield?
The coupon is the fixed interest a bond pays, set when it's issued. The yield is that interest compared with what the bond costs today, so it changes every day.
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