Economy & context
A bond yield relates expected contractual cash flows to the bond's current price under a defined calculation. Yield rises when price falls, all else equal, but realised return can differ.
Make it click
A stream of fixed vouchers offers a higher return when bought more cheaply. The vouchers do not change; the price paid changes the implied yield.
Now put that into markets
Current yield, yield to maturity and yield to call use different cash-flow assumptions. Markets quote the convention appropriate to the instrument.
Yield to maturity assumes contracted payments and reinvestment under its calculation, and ignores default unless cash flows are adjusted. Accrued interest affects transaction price.
Name yield type, price basis, maturity, currency and credit. Compare duration and spread as well as the headline yield.
Quoted yield is not guaranteed realised return when the bond is sold early, defaults, is called or cash flows are reinvested differently.
Takeaway
