What is a bond yield and how does it impact investors?

A bond yield is the return an investor can expect to earn from holding a bond, typically expressed as a percentage of the bond’s face value. It is calculated by dividing the bond’s annual coupon payment by its current market price. Bond yields are influenced by various factors, including interest rates, inflation, and the creditworthiness of the issuer. When interest rates rise, bond prices generally fall, leading to higher yields, and vice versa. For investors, bond yields provide an important measure of the return on investment, with higher yields typically indicating higher risk or inflation expectations.