If you have been reading / hearing / watching the financial news recently, the term “rising bond yields” is getting commonplace. At first glance, you may think it is good news; come on, who does not like rising yields? However, this is not dividend yield, and a rising bond yield is likely to have an effect in the markets.

Bonds 101

 

I had written a short piece on bond yields and coupon rates back here. Essentially, bond yield is calculated by dividing the coupon rate over the current bond price. With the coupon amount (or the numerator) fixed, the bond yield ratio will fluctuate according to the changes in the denominator, which is the prevailing bond price.

 

With this, a rise in bond yield meant the price of bond is falling, and that led to the conclusion that bonds in general are not in favour and are facing

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