BondsIntermediate
Bond Yield
The return a bond gives at its current market price, not its face value.
Detailed explanation
A bond's coupon is fixed in rupees, but its market price moves. When the price falls the same coupon represents a higher yield, which is why bond prices and yields move in opposite directions. Yield to maturity additionally accounts for the gain or loss to redemption.
Formula
Current yield = Annual coupon / Current market price × 100
Example
A ₹1,000 face-value bond paying ₹70 a year, trading at ₹950, yields 70 / 950 = 7.37%.
Why it matters
The 10-year government bond yield is the reference rate against which equities, loans and deposits are all priced.
Key points
- Prices and yields move inversely.
- Longer-maturity bonds are more price-sensitive to rate changes (duration).
- Yield to maturity is the fuller measure of return.
Related terms
Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.