Bonds terms and definitions
Find definitions related to bonds
- Current yield: The annual coupon payments as a percentage of the current clean price (before accrued interest)
- Yield to maturity: The total rate of return that a bond will have earned when it makes all interest payments and repays the original investment. This is assuming the bond is held until maturity and coupons are reinvested at the same rate
- Effectively, it’s the bond’s internal rate of return if held to maturity
- Accrued interest: The amount of interest that's been accumulated, but not yet paid, on a bond since the last coupon payment
- Clean price: The price of a bond, not including any accrued interest
- Dirty price: Refers to the clean price of a bond plus accrued interest. This is the price at which you would buy or sell the bond in the market
- Current coupon: The annual interest rate paid on a bond, expressed as a percentage of the face value. This is often called the coupon rate
- Bond maturity: The date on which the bond reaches the end of its life and the original investment amount is repaid to the holder
- Bond face value: The amount the issuer pays back to the bondholder once maturity is reached for one minimum bond denomination
What is the relation between bond prices and bond yields?
Bond prices and bond yields are inversely proportional. This means that when the price of a bond increases, its yield decreases, and vice versa.
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