A bond's yield is the effective return an investor earns on it, while its price is the amount paid in the market; the two move in opposite directions for a fixed-coupon bond.
- A bond pays a fixed coupon (interest) on its face value; when its market price rises, the same fixed coupon represents a smaller percentage return, so the yield falls, and the reverse holds.
- The yield to maturity is the total return if the bond is held to maturity, factoring in the coupon and any gain or loss versus the purchase price.
- When market interest rates rise, prices of existing fixed-coupon bonds fall (so yields rise) because new bonds offer higher coupons; this is interest-rate risk.
- The yield on the 10-year government security is a key benchmark watched as the cost of long-term borrowing.
- Open market operations by the RBI (buying bonds raises their price and lowers yields) influence the yield curve.
The inverse price-yield relationship for bonds is a classic conceptual trap that appears in capital-market and monetary-policy questions.
Bond price and yield move inversely, not together; a falling bond price means a rising yield. The coupon is fixed, but the yield changes with the market price.
Bond price and yield move inversely; when prices rise yields fall, and rising market interest rates push bond prices down.