• Used by issuers, often governments, to raise money
  • Is the right to earn returns of a loan
  • Loan principle is the issue price, set by the issuer upon issue / initial sale
  • Annual interest rate is the coupon rate, set by the issuer upon issue / initial sale
  • Loan maturity is the bond maturity
  • Buying / selling a bond post-issuance influences the calculated yield of the bond
  • Yield is the effective return an investor sees from the loan: a function of the coupon rate and how much they bought the bond / loan for

Price-Yield Relationship

Bond price and yield are inversely correlated.

Coupon rate is set at issuance, but price (and thus yield) changes according to market behaviors.

Price,Coupon Rate (5% of issuance price),Yield,Description