Bond Yield

Bond Yield Definition

Bond yield represents the return an investor earns from holding a bond, expressed as a percentage. It can be calculated in several ways, with the most common being current yield (annual interest payment divided by bond price) and yield to maturity (YTM), which factors in all future payments and the bond's final value.

Bond yields move inversely to bond prices—when interest rates rise, existing bond prices drop, causing yields to increase.

Bond Yields & Recession Indicators

Economists track bond yields to gauge market conditions and predict economic downturns. A yield curve inversion—when short-term bond yields (like the 2-year Treasury) rise above long-term bond yields (like the 10-year Treasury)—has historically been a strong predictor of recessions. This inversion signals that investors expect slower economic growth and lower interest rates in the future, which often coincides with economic contractions. See also: Bonds