Bond Yield
Bond yield is the return an investor earns from holding a bond, expressed as a percentage. It moves inversely to bond prices — when prices rise, yields fall; when prices fall, yields rise. Yields are the most-watched indicator in fixed-income markets and drive expectations about interest rates, inflation, and even equity valuations. Indian investors should understand bond yields to make sense of debt funds, fixed deposits, and broader economic news.
Key takeaways:
- Bond yield is the return earned from holding a bond, expressed annually.
- Yields and bond prices move in opposite directions.
- Government bond yields are the benchmark for risk-free rates.
- Yield curve shape signals economic expectations.
- Rising yields generally hurt equity valuations; falling yields support them.
Types of bond yield
- Coupon yield: Annual coupon ÷ face value (fixed at issuance).
- Current yield: Annual coupon ÷ current market price.
- Yield to maturity (YTM): The total return assuming you hold the bond to maturity. Most commonly quoted yield.
- Yield to call (YTC): Return assuming the bond is called early.
Why yields and prices move inversely
A bond with a fixed 7% coupon and ₹1,000 face value pays ₹70 per year. If new bonds in the market offer 8% (because rates rose), no one will pay ₹1,000 for a 7% bond. Its price falls until the implied yield matches the new 8% benchmark. Hence falling prices = rising yields, and vice versa.
The yield curve
The yield curve plots yields across different maturities — 3 months, 1 year, 5 years, 10 years, 30 years.
- Upward sloping (normal): Long-term yields higher; economy expanding.
- Flat: Similar yields across maturities; uncertain outlook.
- Inverted: Short-term yields exceed long-term; historically a recession warning.
Yields and equity markets
Higher bond yields raise discount rates used in equity valuation models, often compressing PE multiples. They also offer fixed-income investors a competing return, drawing money out of equities. Falling yields tend to support equities — which is why central bank rate cuts often trigger equity rallies.
How retail investors should think about yields
- Track the 10-year G-Sec yield as the benchmark for India.
- Compare bank FD rates against G-Sec yields to evaluate value.
- Use yields to assess debt fund holdings — duration risk depends on yield direction.
- Be cautious of high-yield corporate bonds: higher yield reflects higher credit risk.
Examples and current context
If the 10-year G-Sec yield rises from 7.0% to 7.5%, existing bond prices fall noticeably; long-duration debt funds may see negative monthly returns. Conversely, a fall from 7.5% to 7.0% boosts those same funds. Equity-heavy investors should monitor the G-Sec yield as a macro signal even if they don’t own bonds directly.
Frequently asked questions
Why are bond yields important even for equity investors?
They influence valuations, sector rotations, and macro narratives that drive stock prices.
Where can I see Indian bond yields?
NSE, CCIL, RBI, and major business news sites publish daily G-Sec yields.
Does Lemonn offer bonds?
Lemonn focuses on equities, F&O and mutual funds; debt mutual funds and ETFs give bond exposure.
What is a good yield?
It depends on risk and time. Compare apples to apples — same credit rating and maturity.
