In my country, the interest rate of bonds is higher than the interest rate of bank deposits. Investing in bonds, investors can obtain stable interest income higher than bank deposits on the one hand, and on the other hand, they can use changes in bond prices to buy and sell bonds and earn price spreads. So, what is the interest rate for bonds? What is the yield on a bond?
1. What is the interest rate for bonds?
The income of those who buy bonds is mainly affected by bond interest rates. The bond interest rate is the ratio of the interest rate of a bond to the face value of the bond. It is mainly affected by factors such as bank interest rates, issuer's credit and capital market conditions. When interest rates on bank deposits rise, bond interest rates will also rise.
If the bond interest rate cannot keep up with the increase in bank deposit interest rates, people will keep the money in the bank instead of buying bonds. The bond issuer's credit is relatively high, so the bond interest rate can be slightly lower. Although the interest rate of this kind of bond is smaller, the risk is also small. When there is sufficient funds in the capital market, the interest rate on bonds can be lower. If the funds are not sufficient, the interest rate should be higher.
2. What is the yield of a bond?
The yield of a bond refers to the ratio of the bond buyer's return on the bond to the principal invested by him. In many cases, the price of a bond does not equal its face value, and therefore the yield of a bond does not equal its interest rate. The yield of
bonds is mainly affected by the following factors:
(1) bond interest rate. Interest rate is proportional to yield.
(2) The difference between the price of a bond and its surface level. Generally speaking, bonds are sold on the market at prices that do not equal their face value. When the price of a bond is higher than its face value, the yield will be lower than the interest rate; when the price is lower than its face value, the yield will be higher than the interest rate.
(3) The repayment period of the bond. When the price of a bond is not equal to its own face value, the longer the repayment period, the smaller the difference between the price of the bond and its face value has on the yield.
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(This information is for reference only and does not constitute investment advice. It should be evaluated carefully when investing)
Edit: gqm
