Guides
A higher bond yield isn’t the same as a higher return
A bond can offer an attractive yield while losing value. Here’s how income, price changes and inflation shape what you actually earn.
A bond’s yield can rise while its owner loses money. It sounds contradictory, but yield and return measure different things.
When you buy a conventional fixed-rate bond, you lend money to its issuer in exchange for scheduled interest payments and repayment of its face value at maturity. Those payments depend on the issuer being able to pay.
Meanwhile, the bond has a market price. And that price can change.
Imagine buying a bond for €1,000 that pays €40 in annual interest. Its current yield is 4%.
Now suppose its market price falls to €900. The annual payment is still €40, but a new buyer’s current yield has risen to roughly 4.44%.
As the existing owner, you haven’t received any extra income. Your investment has fallen in value.
Finanzamille membership
Keep reading. See the bigger picture.
Become a member for the full story, the Daily Brief, and a clearer perspective on the markets.