Bonds & Yields
A bond is a loan you make to a government or company in exchange for interest. Its yield is the return you actually earn at the price you paid — and it moves inversely to that price.
When you buy a bond you lend the issuer a fixed amount for a fixed term. They pay periodic interest, the coupon, and return the principal at maturity. Unlike a share, a bond gives you no ownership and no share of profits — just a contractual claim to be repaid.
The inverse relationship between price and yield is the central mechanic. The coupon is fixed in cash terms, so if you pay less than face value for the bond, that same coupon represents a higher percentage return. Bond prices falling and yields rising are two descriptions of the same event.
Yields reflect two main risks. Credit risk is the chance the issuer fails to repay, which is why a shaky company pays more than a stable government. Duration risk is sensitivity to interest rate changes, which grows with the time to maturity — long-dated bonds move far more sharply on a rate shift than short ones.
The yield curve plots yields across maturities. It normally slopes upward, since lending for longer demands more compensation. When it inverts and short-dated yields exceed long-dated ones, it signals that markets expect rates — and often growth — to fall, a pattern that has preceded past recessions.
TrustFinance News tracks government bond yields alongside equities and currencies, since rate expectations move all three together.