Written by - What Are Bond Yields? Bond yields represent the return an investor can expect to receive from a bond, expressed as a percentage of the bond’s face value.
- Types of Bond Yields:
- Current Yield: The bond’s annual interest payment divided by its current market price.
- Yield to Maturity (YTM): The total return anticipated if the bond is held until maturity, including interest and capital gains.
- Yield to Call (YTC): The return if the bond is called before its maturity date, applicable for callable bonds.
- Yield to Worst (YTW): The lowest yield an investor can expect, assuming the bond is called before maturity.
- How to Use Bond Yields in Your Investment Strategy:
- Compare Yields with Other Investments: Use bond yields to evaluate whether bonds provide better value than stocks, ETFs, or real estate.
- Assess Risk vs. Reward: High yields may come with higher risk, so balance your portfolio accordingly.
- Consider Interest Rates: Rising interest rates can lead to falling bond prices, so adjust your strategy based on rate forecasts.
- Use Bonds for Stability: Bonds are typically less volatile than stocks, so use them to balance a growth-heavy portfolio.
- Focus on Duration: Longer-duration bonds are more sensitive to interest rate changes, so consider your investment horizon.
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