A bond yield is the annual return a bond pays relative to its current price. Yields move inversely to bond prices: when a bond’s price falls, its yield rises. Australian government bond yields serve as a benchmark for longer-term interest rates across the economy.
A bond’s coupon is fixed when it is issued, but the bond then trades in the market at whatever price buyers will pay. Pay less than face value for the same fixed payments and your effective return is higher; pay more and it is lower. That mechanical see-saw between price and yield is the single most important fact about how bonds behave.
Government bond yields matter far beyond the bond market. The ten-year Australian Government bond yield is the economy’s reference price for long-term money: it feeds into fixed mortgage pricing, corporate borrowing costs and the valuation of almost every long-lived asset. Yields also embed market expectations of future cash-rate moves and inflation.
The division is the whole of it: the fixed payment over the price actually paid. The Australian Office of Financial Management describes the coupon interest rate as fixed when the bond is first issued and constant for the life of the bond, distributed half-yearly, so a 3.00 per cent coupon on $100 of face value pays $1.50 twice a year. Suppose that bond changes hands at $92.00, a price supposed for the arithmetic. The current yield is $3.00 divided by $92.00, or 3.26 per cent; the same $3.00 bought at $108.00 is 2.78 per cent. What that division omits is the $8 the issuer still repays at maturity. Recovering it takes a different operation: discounting every remaining coupon and the $100 back to $92.00, which over five years solves to about 4.8 per cent. That is the yield to maturity, and its distance from 3.26 is what a current yield leaves out.
This page defines the mechanics; current Australian government bond yields live on Tradergy’s bond-yields page, sourced from official series.
Longer read: Why a long bond falls further, and what duration measures. Two bonds can face the same change in market yields and lose very different amounts of value. The property that decides how much is measurable, has a name, and is not what its name suggests.
The practical companion to this definition is the live bond-yields page.
Related terms
Cash rate · Term deposit · All terms
Primary authority: RBA interest-rate statistics. Definition reviewed against the authority’s published material; this page is reference information, not advice.
Common questions
Why do bond prices and yields move in opposite directions?
Because the bond’s payments are fixed. If the price paid for those fixed payments falls, the return earned on the money invested rises, and vice versa. The relationship is arithmetic, not a market convention.
What does a rising ten-year yield signal?
It means investors are demanding a higher return to lend for ten years, commonly reflecting expectations of higher inflation or cash rates, or increased supply of bonds. It is an input to fixed borrowing costs across the economy rather than a forecast in itself.
Do bond yields move with the cash rate?
Short-term yields track cash-rate expectations closely. Longer yields, such as the ten-year, respond to a wider mix: expected inflation, global bond markets and the supply of government debt. The two can and do move in different directions at times.