What Is Bond Yield and How to Calculate It
Published Apr 13, 2026 · 6 min read
Bonds are loans you make to governments or corporations. Understanding yield helps you compare bonds and decide if they fit your portfolio.
Key Bond Terms
- Face value (par) β The amount returned at maturity, typically $1,000.
- Coupon rate β The annual interest rate printed on the bond.
- Current yield β Annual coupon Γ· current market price.
- Yield to maturity (YTM) β Total return if held to maturity, including price gain/loss.
Example
A bond with $1,000 face value, 5% coupon, bought at $950, maturing in 5 years. Coupon payment = $50/year. Current yield = $50 / $950 = 5.26%. YTM factors in the $50 gain at maturity, bringing the effective yield closer to 6%.
When Bonds Make Sense
- You want steady income with lower risk than stocks
- You're within 5-10 years of retirement
- You want to diversify beyond equities
- Interest rates are high (lock in today's rates)
Try it: Use our Bond Yield Calculator to compute current yield and YTM for any bond.