What is a bond yield?
A bond yield is the annual return an investor earns from a bond, expressed as a percentage of the bond’s current market price. When a government or company issues a bond, it agrees to pay the holder regular interest, known as the coupon, plus the original loan amount, called the face value or par value, back at a set date known as maturity. In the UK, government bonds are called gilts. In the US, the equivalent is called Treasuries. Bonds issued by companies are known as corporate bonds. According to interactive investor (ii.co.uk, 2026), the coupon is fixed at issue and never changes, but the yield moves constantly because it is calculated against the bond’s current trading price, not its original price.
Bond yield vs bond price: the inverse relationship
Bond prices and yields always move in opposite directions. According to FINRA (Understanding Bond Yield and Return), as the price of a bond rises, its yield falls, and as the price falls, its yield rises. This happens because the coupon payment is fixed in pounds, so when the price paid for the bond changes, the percentage return implied by that fixed payment changes with it.
For example, a bond with a £1,000 face value and a 5% coupon pays £50 a year regardless of what happens to its price. If demand pushes the market price up to £1,250, that same £50 payment now represents a yield of 4% (£50 divided by £1,250). If the price instead falls to £800, the yield rises to 6.25% (£50 divided by £800). This illustrative example is for explanation only and does not reflect any specific bond.
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