Bond Yield Calculator

Current Yield: Annual coupon payment divided by the current price. Simple but doesn't account for capital gains/losses at maturity.

Yield to Maturity (YTM): The total return if you hold the bond until maturity, including both coupon payments and price changes. This is the most comprehensive measure.

Discount vs Premium: Bonds bought below face value (discount) will have YTM higher than coupon rate. Bonds bought above face value (premium) will have YTM lower than coupon rate.

Interest rate risk: When interest rates rise, existing bond prices fall (and vice versa). Longer-term bonds are more sensitive to rate changes.

Bond prices and yields have an inverse relationship. When interest rates rise, existing bonds become less attractive because new bonds offer higher coupon payments. This drives down the market price of existing bonds below their face value (selling at a discount). Conversely, when rates fall, existing bonds with higher coupons become more valuable and trade above face value (selling at a premium).

Example: Suppose you hold a bond paying 4% when new bonds start offering 5%. Buyers will only purchase your 4% bond if the price drops enough to make the effective yield competitive. The bond might trade at $920 instead of its $1,000 face value, boosting the current yield for the new buyer.

Duration and sensitivity: Longer-term bonds are more sensitive to interest rate changes. A 30-year bond's price will swing much more dramatically in response to rate changes than a 2-year bond. This concept, called duration, is critical for managing bond portfolio risk. If you expect rates to rise, shorter-duration bonds provide protection against price declines.

Credit quality matters: Bond yields also reflect credit risk. US Treasury bonds carry the lowest yields because they are backed by the federal government. Corporate bonds offer higher yields to compensate for the risk of default. High-yield (junk) bonds pay the most but carry meaningful default risk, especially during economic downturns.

Treasury bonds: Issued by the US government, these are considered virtually risk-free. Available as T-bills (under 1 year), T-notes (2-10 years), and T-bonds (20-30 years). Interest is exempt from state and local taxes.

Municipal bonds: Issued by state and local governments to fund public projects. Interest is typically exempt from federal income tax, and often from state tax if you buy bonds from your home state. This makes them especially valuable for investors in high tax brackets.

Corporate bonds: Issued by companies to raise capital. Investment-grade bonds (rated BBB or higher) offer moderate yields with low default risk. High-yield bonds offer more income but more risk. Always check the issuer's credit rating before purchasing.

I Bonds: A special type of Treasury savings bond that adjusts for inflation. The rate is a combination of a fixed rate plus the CPI inflation rate, updated every six months. Purchase limits apply ($10,000 per year per person electronically), but they are an excellent hedge against inflation.