Understanding Bonds and Yields
Bonds trade on price and yield, which move opposite each other. The core concepts every investor should know.
Last updated: 2026-07-20
A bond is a loan you make to a government or company in exchange for regular interest (the coupon) and your principal back at maturity. Bonds add stability to a portfolio, but their pricing trips up many beginners.
Price and yield move opposite
A bond's coupon is fixed, but its market price moves. When the price falls below face value, the yield (income relative to price) rises; when the price climbs above face value, the yield falls. So bond prices and yields always move in opposite directions.
Current yield vs yield to maturity
- Current yield — annual coupon divided by the current price. A quick snapshot of income.
- Yield to maturity — the total return if you hold to maturity, including price gains or losses. A fuller measure.
Interest-rate changes are the main driver: when rates rise, existing bonds with lower coupons become less attractive, so their prices fall and yields rise to match. Estimate a bond's current yield with the calculator below.