Understanding Bond Yields and the Yield Curve
When it comes to investing in bonds, one of the first factors to consider is yield. But what exactly is "yield?" The answer depends on how the term is being used. In the broadest sense, an investment's yield is the return you get on the money you've invested. However, there are many different ways to calculate yield. Comparing yields can be a good way to evaluate bond investments, as long as you know what yields you're comparing and why.
People sometimes confuse a bond's yield with its coupon rate (the interest rate that is specified in the bond agreement). A bond's coupon rate represents the amount of interest you earn annually, expressed as a percentage of its face (par) value. If a $1,000 bond pays $50 a year in interest, its coupon rate would be 5%.
Current yield is a bit different. It represents those annual interest payments as a percentage of the bond's