What is yield
Yield is the income an investment pays, measured against its price and usually stated as a yearly percentage.
Current yield is the simplest bond version. It is the bond's yearly coupon income divided by the bond's current market price. A coupon is the fixed interest a bond pays. See Coupon (bond).
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Current yield formula
Current yield = annual coupon income ÷ current market price, shown as a percentage.
The coupon is fixed at issue as a share of face value. The market price moves every day. Because only the price changes, yield and price move in opposite directions:
- price falls below face value, so current yield rises above the coupon rate;
- price rises above face value, so current yield falls below the coupon rate;
- price equals face value, so current yield equals the coupon rate.
Worked example (hypothetical)
Take a hypothetical bond with a fixed yearly coupon. When it was issued, it traded at face value, so its current yield matched its coupon rate.
Later, interest rates in the economy rise, and buyers will only take the bond at a price below face value. The coupon in rupees has not changed. It is now divided by a smaller price, so the current yield is higher than the coupon rate.
If rates later fall and the price climbs above face value, the same coupon gives a lower current yield. To run this with your own figures, put the coupon and the price into the formula above.
Bond yield meaning: the formal definitions
Current yield ignores time and the repayment at maturity. Professionals usually quote other measures:
- Yield to maturity (YTM). This is the single discount rate that makes the present value of all remaining coupons plus the face value equal to today's price. When people say "bond yield" in the news, they mean YTM.
- Yield to call. This is the same calculation, but it assumes the issuer repays early on the call date.
- Dividend yield. For shares, it is yearly dividends divided by the share price.
Edge cases
- No-coupon bonds (such as discount Treasury bills) have no current yield, because there is no coupon to divide. Their yield comes from buying below face value.
- Clean versus dirty price. Bond quotes usually exclude accrued interest. Check which price was used.
- Floating-rate notes. The coupon resets, so current yield changes even when the price is still.
- Credit risk. A very high yield can mean the market fears a default. It does not mean the income is safe.
- Price sensitivity. How far a price moves when yields change depends on duration.
Where you see the term
- News and reports. Moves in benchmark government bond yields are reported in basis points, for example US Treasuries or the German Bund. In Pakistan, yields on government securities are set at auctions and tend to follow the policy rate. A recent decision reads: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC).
- Trading platforms. Forex and CFD platforms such as MT5 do not show bond yields. However, interest-rate differences between currencies feed into overnight swap fees, and yield news can move currency pairs and gold sharply.
Trading leveraged CFDs around rate or yield news can lose money fast. Price gaps and wide spreads are common at those moments.
Related terms
Frequently asked questions
Is current yield the same as the coupon rate?
No. They are equal only when the bond trades at face value. The coupon rate uses face value, while current yield uses the market price.
Why do bond prices fall when yields rise?
The coupon is fixed. A buyer who wants a higher yield will only pay a lower price for the same income.
Is a higher yield better?
Not by itself. A higher yield often reflects higher credit risk or rate risk.
Which yield do news headlines quote?
Usually yield to maturity on government bonds, not current yield.