Whats a bond yield? When bond investors refer to yield, they are usually referring to yield to maturity (YTM). YTM is a more advanced yield calculation that shows the total return you will receive if you hold the bond to maturity.
Yes, high bond yield does just amazing, to get more for your return, but this is alarming news because it can mean three of these things, HIGH INFLATION RATES, HIGH INTEREST RATES, HIGH RISK.
- If there’s high inflation that means prices are rising up
- High interest rates mean that there is less investment; less investment means less long term growth.
- High risk means everyone is scared. People are risk averse.
– Hopefully this helps you understand why high bond yield isn’t a good thing.
Summary of article:
- Investors have been bailing on bonds with greater urgency since Wednesday, when Federal Reserve chairman Ben Bernanke said the central bank would start phasing out its bond-buying program later this year if the economy continues its upward trajectory.
- Rising yields are problematic for the housing market, which has been a key driver of the economic recovery, because it increases mortgage rates.
- Rising yields also could hurt stock prices as it could cause investors to turn more cautious and reduce their willingness to take the risk of buying stocks
Categories: Capital Markets