Bond Yield & Pricing

Yield to maturity is the total annual return you would earn if you bought a bond today and held it until it matures, assuming all payments are made and coupons are reinvested at the same rate. Unlike the simple coupon rate, YTM accounts for the price you paid, any gain or loss versus the bond's face value, and the time remaining. It is the standard way to compare bonds of different prices, coupons, and maturities on a like-for-like basis.

A bond pays a fixed coupon, so when new bonds are issued at higher rates, existing lower-coupon bonds become less attractive and their price must fall until their yield matches the new market rate. The reverse happens when rates fall. This inverse relationship between price and yield is fundamental to bond investing, and it is why bond values move even though the coupon never changes.

Duration measures how sensitive a bond's price is to changes in interest rates, expressed roughly as the percentage price change for a one-percent move in rates. A longer duration means bigger price swings when rates move. It helps you gauge interest-rate risk: a long-duration bond can lose significant value if rates rise, while a short-duration bond is far steadier. Matching duration to your time horizon is a common way to manage that risk.

No. YTM assumes you hold to maturity, that the issuer does not default, and that coupons are reinvested at the same yield - conditions that may not hold in practice. If you sell early, your actual return depends on the price at that time. Treat the output as a standard comparison metric and an educational estimate, not a promised return.