What is a bond, and what is a yield?

A bond is a loan. A government or company borrows money for a set number of years, pays the lender interest along the way (the coupon), and repays the amount borrowed at the end (at maturity). Unlike a bank loan, a bond can be bought and sold between investors before it matures.

The yield

The yield is the yearly return a buyer gets if they buy the bond at today’s price and hold it to the end. It combines the coupon with any gain or loss from paying more or less than the amount that will be repaid.

Prices and yields move in opposite directions

Say a 10-year bond pays €3 a year on €100. If interest rates in the market rise so that new bonds pay €4, nobody will pay €100 for the old €3 bond. Its price drops until its yield roughly matches the new rate. So:

• Rates up → existing bond prices down → yields up
• Rates down → existing bond prices up → yields down

Why the 10-year government yield matters to you

Lenders price long-term loans off it. When the 10-year yields rise, new fixed-rate mortgages and company loans usually get dearer, even if the central bank hasn’t moved.

Why countries pay different rates

Lenders ask more from governments they see as riskier or more indebted. The gap between, say, Portugal’s and Germany’s 10-year yields (the spread) is a running measure of that extra caution. You can compare them on the bond yields chart.