Bonds pay interest in two ways: through regular coupon payments and price changes reflecting market yields. The current yield shows what you'd earn if you bought the bond today.
Most bonds make fixed interest payments (coupons) every six months. For example, a $1,000 bond with a 5% coupon pays $25 every six months. However, bond prices fluctuate based on interest rate movements, affecting the actual return investors receive.
| Type | Description | Example |
|---|---|---|
| Coupon Payment | Fixed periodic interest payment | $25 every six months on a $1,000 bond with 5% coupon |
| Current Yield | Annual coupon payment divided by current price | If price drops to $900, current yield becomes 5.56% |
| Yield to Maturity | Total return if held until maturity, including price changes | Higher if bought at discount, lower if bought at premium |
To see what bonds are paying today, check financial websites like Bloomberg, Yahoo Finance, or TreasuryDirect.gov for government bonds. These platforms show current yields for different maturities and bond types. For instance, the 10-year Treasury yield is often used as a benchmark for global borrowing costs.
According to the U.S. Securities and Exchange Commission, bond prices move inversely to interest rates. When rates rise, existing bonds typically fall in price, which affects their current yields.
Many investors confuse coupon payments with current yields. A bond's coupon rate is fixed, but its current yield changes as its price fluctuates. For example, a bond issued at par ($1,000) with a 4% coupon pays $40 annually. If its price later falls to $900, its current yield rises to about 4.44%.
To see what your bonds are paying, look at their last trade price and coupon rate. Divide the annual coupon by the current price for the current yield. For instance, if you hold a bond with a $30 annual coupon trading at $950, its current yield is approximately 3.16%.