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Bonds, Cash & Savings
What Are Bond Yields? Coupon, Current Yield and Yield to Maturity Explained
A bond yield is the return an investor earns on a bond, expressed as a percentage. The coupon yield is the fixed payment as a share of face value; the running yield divides the coupon by the current price; and the yield to maturity is the total return if the bond is held to redemption.
Bond yield measures compared
| Yield measure | What it means | Simple example (illustrative) |
|---|---|---|
| Coupon (nominal) yield | The fixed annual coupon as a percentage of the bond face value (nominal value). It never changes once the bond is issued. | A GBP 100 bond paying a GBP 5 coupon each year has a 5% coupon yield. |
| Running / current yield | The annual coupon divided by the current market price. It moves as the price moves, so it reflects what a new buyer earns on income today. | If that same GBP 5 coupon bond trades at GBP 80, the running yield is 5 / 80 = 6.25%. |
| Yield to maturity (redemption yield) | The total annual return if you buy at the current price and hold to maturity, counting both the coupons and any gain or loss versus the GBP 100 returned at redemption. | Buying at GBP 80 a bond that repays GBP 100 at maturity adds a capital gain on top of the coupons, so the yield to maturity is higher than the 6.25% running yield. |
| Price and yield move inversely | For a fixed set of cash flows, paying a higher price lowers the return, so when the price rises the yield falls, and when the price falls the yield rises. | The GBP 5 coupon is fixed, so a price of GBP 100 gives 5% while a lower price of GBP 80 gives 6.25%. |