Yield

A bond pays fixed amounts on a fixed schedule. Its yield is those payments expressed as a rate of return on what you pay for it now — so yield moves inversely to price. When bond prices rise, yields fall.

Long yields are not set by the Fed. They reflect where markets expect short rates to average over the life of the bond, plus compensation for tying money up that long — including compensation for expected inflation — and they also reflect how much debt the Treasury is asking the market to absorb. This is why a rate cut today can coincide with long yields rising: the cut is known, the expected path or the supply is what moved. See why mortgage rates move.

A worked example

A bond pays $40 a year and matures in ten years at $1,000. Bought at $1,000, it yields 4 percent. If markets now expect rates to rise, no one will pay $1,000 for a $40 coupon, and the price falls to, say, $960 — at which the same $40 is a higher return, and the yield to maturity works out at roughly 4.5 percent. The bond did not change. Its price did, and yield is the mirror image of price.

Held to maturity, the buyer at $960 collects $40 a year and $1,000 at the end regardless of what yields do in between. The owner who must sell in between does not.

How to read it in coverage

“Yields rose” means bond prices fell, and usually means the market expects higher short rates, more inflation, or more Treasury issuance ahead. The ten-year Treasury yield is quoted constantly because mortgage rates are priced off it — the ten-year page shows it stamped. A yield “curve inversion” means short yields above long ones, which the market has historically produced ahead of recessions. It is a signal about expectations, not a decision by anyone.