What Is a Bond Yield, and Why Does It Move Every Market?
Sep 22, 2026 · 5 min read
Bond yields set the price of money across the economy. Here is how they work, why they move inversely to bond prices, and why stock and currency traders watch them.
What a bond yield measures
A bond is a loan. You lend money to a government or company, and it pays you interest, called the coupon, and returns your principal at maturity. The yield is the annual return you earn relative to the price you actually pay. If a bond pays 4 units a year and costs 100, the yield is about 4 percent.
Why prices and yields move in opposite directions
Existing bonds keep paying their fixed coupons. If new bonds start offering higher coupons, nobody will pay full price for the older, lower-paying ones, so their prices fall until their yield matches the new market level. A falling bond price therefore means a rising yield, and the reverse.
What drives yields
Three things matter most: expectations for the central bank's policy rate, expected inflation, and the extra compensation investors demand for lending for a longer time. News that raises any of these tends to push yields up.
Why other markets care
Yields act as the benchmark price of money. When they rise, mortgages and corporate borrowing cost more, and future company profits are worth less in today's terms, which weighs on stock valuations. Higher yields can also attract foreign money into a currency. That is why a surprise in inflation data can move bonds, stocks and the dollar within minutes.
A useful habit
Look at real yields, which subtract expected inflation, as well as headline yields. A 4 percent yield means something very different when inflation is 2 percent than when it is 4 percent.
