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Market concept
Intermediate
6–7 min read
Bond yields
The yield on a bond tells you what percentage you will earn on it each year if you buy it today at the market price and hold it until it matures. For a bond traded on the market, the interest, known as the coupon, is fixed, while the price changes every day. That is why price and yield work like a seesaw: when the price falls, the yield rises, and vice versa.
In our briefs, the yield that comes up most often is the one on 10-year US government bonds (Treasuries), known simply as “the 10-year”. This yield is a benchmark for markets worldwide, from US mortgage rates to stock valuations.
At a glance
Who sets yieldsthe marketinvestors buying and selling every day, mostly over the counter rather than on an exchangethe central bank influences them but does not set them
Latest US 10-year T‑note yield4.96%as of 22 Oct 2026; US Treasury, end of day
Unit% a yearchanges are measured in basis points (bp): 1 bp is one hundredth of a percentage point, so a change from 5.09% to 5.15% is +6 bp
How often yields changeevery daymost often by a few bp, whereas central bank rates move in steps, usually of 25 bp
How it works
What does it mean when bond yields rise?
It means bonds are getting cheaper: the interest stays the same, so the lower the price, the higher the percentage it represents.
Imagine a fixed-rate savings account paying 4% a year, while new ones already pay 5%. If you could sell it on, nobody would pay you the full amount you put in: a buyer would want to earn the same 5% that a new account pays. Bonds work the same way, except that you really can sell them on.
- Investors sell bonds
- The bond price falls, e.g. from 100% to 98% of face value
- The interest stays the same, but the bond costs less
- The yield rises: the same interest, measured against a lower price, gives a new buyer a higher percentage return
Bond prices are quoted as a percentage of face value, i.e. the amount the issuer repays at maturity: with a face value of $1,000, a price of 98% means $980.
Do the maths: a bond bought for $980Show the calculationHide
Bond with a $1,000 face value, 5% interest a year
Interest: 5% × $1,000$50 a year
Price: 98% × $1,000$980
Interest as a share of the price paid: 50 ÷ 980≈ 5.1% a year
Extra gain at maturity (the discount): 1,000 − 980+$20
Yieldmore than 5% a year
Take a bond that pays $50 interest a year, i.e. 5% of face value. Anyone who buys it for $980 gets the same $50 every year, about 5.1% of what they paid, and at maturity they receive $1,000, $20 more than the purchase price. So they earn more than 5% a year: the yield has risen. It works both ways: when investors buy bonds, the price rises and the yield falls.
Where does the seesaw work?
Secondary market · the price changes
Treasuries and gilts
Investors trade US Treasuries and UK government bonds (gilts) every day. This is where the seesaw works: when the price falls, the yield rises.
Savings bonds · the price stays fixed
NS&I Green Savings Bonds
National Savings and Investments (NS&I), which is backed by HM Treasury, sells them directly to savers, with a term of three years. They are not traded: you put in, say, £100, and at the end of the term you get the same £100 back plus fixed interest. You cannot take your money out early.
An example
How are bond prices and yields related?
The seesaw: what is your bond worth?
On 30 June you buy a 10-year US bond for $1,000 with a 4.44% coupon. Three months later, new 10-year bonds yield 5.29%. Move the slider to see how much another investor would pay you for it at a higher or lower yield.
Your bond’s price$935.8093.58% of face value
Yield on new 10-year bonds5.29%+85 bp vs 4.44%
New 10-year bonds yield 5.29%, while yours pays only 4.44% interest on its face value. So a buyer will pay you less: $935.80, 6.4% less than you paid.
Rule of thumb for the 10-year: each 10 bp move in the yield shifts the price by about 0.75%.
Even bonds seen as the safest in the world can lose value. In the third quarter of 2026 there was a sell-off in US government debt, and the 10-year yield rose by 85 bp. The price of a bond bought at the end of June fell by about 6.4% in three months – almost a year and a half of interest at its 4.44% coupon. That is a loss only if you sell the bond before it matures: if you hold it, you still get 100% of face value on the maturity date. The 10-year yield peaked at 5.31% on 5 October, its highest level since May 2002. In our 30 September brief, we pointed out that bond prices fall when their yields rise.
How did we calculate the example above?Show the calculationHide
Bond bought on 30 June for $1,000, 4.44% coupon
Interest: 4.44% × $1,000$44.40 a year
Price on 30 Sep: 93.58% × $1,000$935.80
Fall in the bond’s value (the seller’s loss): 935.80 − 1,000−$64.20 (−6.4%)
Equivalent in years of interest: 64.20 ÷ 44.40≈ 1.45 years
A buyer on 30 Sep earns5.29% a year
The fall in price wiped out almost a year and a half of interest. We took a bond with a 4.44% coupon, bought on 30 June at 100% of face value, i.e. for $1,000. By 30 September investors wanted to earn 5.29% a year on 10-year bonds, so they would pay only 93.58% of face value for the same bond, i.e. $935.80: at that price, the same interest payments plus $1,000 at maturity give them exactly 5.29% a year.
Prices exclude accrued interest. End-of-day yields according to the US Treasury; our briefs sometimes quote yields from other times of day.
Worth knowing: bond yields and borrowing
US30 yearsThe most common mortgage term, usually with a fixed rate. Rates on new mortgages tend to follow the 10-year yield: according to the mortgage finance company Freddie Mac, they rose from 6.27% to 7.40% between 16 October 2025 and 15 October 2026, while the 10-year yield rose from 3.99% to 5.10% – in both cases by about 1.1 percentage points.
UKabout 90%Between 2015 and mid-2023, that was the share of new mortgages with a rate fixed for an initial two or five years, according to the Bank of England. Lenders price these deals off swap rates – the market cost of locking in a fixed rate for two or five years – which usually move in line with gilt yields. So when a fixed deal ends, the new rate depends on market rates at the time.
Finland and the Baltic statesover 90%That is the share of new mortgages in Finland and the Baltic states with a variable rate based on Euribor (the rate at which euro-area banks lend to each other), which moves with ECB rates. In France, Spain and Germany, fixed rates are the norm: only 3% to 13% of new mortgages are variable.
US companies9%That is the share of S&P 500 companies’ debt with a floating rate: large companies borrow mainly through fixed-coupon bonds, so they do not feel the higher yields that investors demand until they refinance, i.e. replace maturing bonds with new ones. For smaller firms in the Russell 2000 index, that share is already about 45% of their debt, so rate rises push up their interest costs faster.
Data: Freddie Mac (weekly mortgage rate survey) and the US Treasury; Bank of England (Staff Working Paper No. 1,203, August 2026); ECB (new mortgages, August 2026); Penn Mutual Asset Management (2024, based on Lazard data from 2023).
How to read it
When a brief mentions yields, look at four things
DirectionYield ↑ = price ↓And vice versa: when yields fall, bond prices rise. A “bond sell-off” and “rising yields” describe the same move.
Scale10 bp in one day is a lotChanges in yields are measured in basis points (bp). For the US 10-year, a move of 10 bp or more in a single day is a lot: since the start of 2026 it has happened only six times in 200 trading days. On most trading days (155 of 200), the yield moved by 5 bp or less.
Maturity2 years or 10?Two-year bonds react mainly to expectations for the central bank’s interest rates (in the US, the Fed). Ten-year bonds also react to what the market expects for inflation and economic growth over the coming years. That is why in the US it is their yield that serves as the benchmark for fixed-rate mortgages.
CountryFrance vs Germany: a 97 bp gapIn September 2026, that was the yield spread, i.e. the gap between the yields on two countries’ bonds with the same maturity: 10-year French bonds yielded 4.44% on average and German bonds 3.47%. France pays more to borrow than Germany, mainly because its public debt and budget deficit are higher: investors demand a higher yield in return for the greater risk. In October, French bond yields rose further.
Sources: daily changes in the US 10-year yield from 2 January to 20 October 2026 (200 trading days), US Treasury; average yields on French and German bonds in September 2026, ECB.
Cheat sheet: what the market usually does when yields rise or fall
US 10-yearYields rise
Bond pricesfall
US mortgage ratesrise
Dollarstrengthens
Stocksfall
US 10-yearYields fall
Bond pricesrise
US mortgage ratesfall
Dollarweakens
Stocksrise
Gap between two countries’ bond yieldsYield spread widense.g. France vs Germany
French bond pricesfall
French stocksfall
Euroboth countries’ currencyweakens
Bond prices always move in the opposite direction to yields. Rates on new US mortgages tend to follow the 10-year yield because lenders fix them for many years ahead. The dollar usually strengthens because higher US yields attract money from abroad. Stocks tend to fall for two reasons: borrowing gets more expensive for companies, and since bonds offer higher yields, some investors move money from stocks into less risky bonds. When France’s yield spread over Germany widens, the euro and French stocks usually fall because investors worry about the public finances of one of the largest euro area economies. These are typical market reactions. It does not always work like this, though, because many forces act on the market at once: in early October the S&P 500 and the Nasdaq hit record highs despite US 10-year yields above 5% (see our 7 October brief).
Test yourself
1. A bond’s price fell from 100% to 95% of face value, and the coupon did not change. What happened to its yield?
2. The US 10-year yield rose from 5.09% (16 October) to 5.15% (19 October). By how much?
3. US 10-year bond yields rise sharply. What usually happens to stocks?
Answer all three questions.
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In other languages
PLrentowność obligacji
DEAnleiherendite
FRrendement obligataire
ESrentabilidad de los bonos
ITrendimento delle obbligazioni