Bonds: Coupon, Par, Price and Yield
A bond is a loan cut into tradable pieces. Its price and its yield move in opposite directions by arithmetic necessity, and that single fact drives most of what happens in fixed income.
MadStockAlerts Research · Updated August 28, 2026
What to take away
- Price and bond yield move inversely, because the coupon rate is fixed while the price is not.
- Yield to maturity is the return earned if the bond is held to the end and coupons reinvest.
- Bond duration measures how much a bond's price responds to a change in rates.
- Bondholders rank ahead of shareholders, which is why they accept a lower expected return.
- Every other asset, equities included, is priced against the government bond yield.
MAD Academy Training Video · 0:45
Price and Yield Move Opposite Ways
A bond's payments are fixed at issue, so the only way the market repriced it is through the price — which is why yield rises when price falls.
This lesson is part of a Stock Alerts + Tools plan.
The mechanics
A bond has a face value, usually $1,000, a coupon rate paid on that face value, and a maturity date on which the face value is repaid. Once issued, it trades, and its price moves while its coupon payment does not.
That is the whole of the inverse relationship. A bond paying $50 a year costs $1,000 when the market wants a 5 percent return. If the market later demands 10 percent, the only way a fixed $50 can deliver it is for the price to fall to roughly $500. Nothing about the bond changed; the price of money did.
current yield = annual coupon / market price
- yield to maturity also accounts for the gain or loss to par at maturity
Yield to maturity is the figure normally quoted, because it captures the full return: the coupons plus whatever is gained or lost by holding a bond bought below or above par until it repays at face value.
Duration
Bond duration expresses that price sensitivity as a single number. A bond with a duration of 7 falls roughly 7 percent in price when yields rise one percentage point, and rises roughly 7 percent when they fall.
| Maturity | Approx. duration | Price change if yields rise 1% |
|---|---|---|
| 2-year note | ~1.9 | about -1.9% |
| 10-year note | ~8.5 | about -8.5% |
| 30-year bond | ~19 | about -19% |
Longer maturities have higher duration because more of their value sits further in the future, where discounting bites hardest. This is why a thirty-year Treasury security is a far more volatile instrument than a two-year note despite both being obligations of the same issuer with no credit risk between them.
The phrase safe asset conceals this. A long government bond carries no credit risk at all and can still lose a third of its value in a rising-rate year. Safe means the coupons and principal will be paid; it does not mean the price will not move.
The three risks
- Interest rate risk: the price falls when prevailing yields rise. Unavoidable, and measured by duration.
- Credit risk: the issuer may not pay. Absent for Treasuries by convention, central for corporate and high-yield debt.
- Inflation risk: the fixed payments buy less over time, which is what inflation-protected securities exist to address.
Credit risk is priced as a spread over the government yield of the same maturity. When that spread widens across the whole corporate market at once, it is describing a change in how much compensation lenders want for the possibility of not being repaid, which is one of the more reliable stress indicators available.
Why equity traders watch bonds
The yield on a government bond is the return available for taking almost no credit risk. Every other asset is priced against it, because a risky asset has to offer more than the risk-free alternative or nobody would hold it.
When that yield rises, the discount rate applied to distant corporate cash flows rises with it, and the companies whose value sits furthest in the future are marked down hardest. This is the mechanism behind the observation that fast-growing companies fall more than established ones when rates rise: their cash flows have further to be discounted.
It also works through competition for capital. When cash and short bonds yield close to nothing, the case for holding equities needs no comparison; when they yield five percent, every equity has to clear a much higher bar.
The homepage board carries the Treasury curve across day, week, month, year and five-year windows.
Treasury yieldsWhere the yield comes from
A bond's quoted yield is not its coupon. It is the return implied by paying today's price for a fixed stream of future payments, and several different yields are quoted for the same bond.
| Measure | What it is |
|---|---|
| Coupon rate | The fixed annual payment as a percentage of par. It never changes |
| Current yield | The coupon divided by the current price. Ignores the return of principal |
| Yield to maturity | The return if held to maturity and every payment is made |
| Yield to worst | The lowest yield across every possible call date. The conservative figure for a callable bond |
Yield to maturity is the standard quote and it embeds two assumptions worth knowing: that the issuer makes every payment, and conventionally that coupons are reinvested at the same yield. Neither is guaranteed, which is why a yield to maturity is a projection rather than a measurement.
A bond trading above par has a yield below its coupon, and one trading below par has a yield above it. That follows arithmetically from the return of exactly par at maturity, whatever was paid for the bond.