Bond Yields

A bond yield is the return of holding a bond until it's maturity date. Since bonds are being issued by governments they determine the amount of money a country needs to pay to borrow money.

• The bond yield is payed via "coupon" payments over the lifetime of the bond
• Interest rates affect the value of issued bonds
  • If the interest rate rises, bond yields rise, making old bonds less valuable (on the bond market)
  • If the interest rate falls, bond yields fall, making old bonds more valuable
  • This means there is an inverse relationship between bond yields and bond prices
• Climbing yields mean that borrowing money is becoming more expensive (this also influences mortgage rates, etc.)
• Long term bond yields are a good proxy for where interest rates might be going
• Bond yields are a key part of monetary policy the US federal reserve uses to help influence the economy
  • Higher bond yields can help "cool down" the economy, which should help brining down inflation in the long term
• Some countries like the UK include bonds in pension funds, this means that higher yields negatively influences the value of those funds