When investing in bonds, understanding terms like yield, maturity, and interest rates is important. Yield refers to the return you earn on a bond, which is usually expressed as a percentage. It depends on the bond’s price and the fixed interest it pays, also called the coupon rate. If the bond price changes in the market, the yield adjusts accordingly.
Maturity is the date when the bond’s term ends, and the issuer repays your original investment. Bonds can have short-term, medium-term, or long-term maturities, depending on how long they last. Longer maturities usually offer higher interest rates to compensate for the extended commitment.
Interest rates have a direct impact on bond prices. When interest rates rise, existing bond prices typically fall, as newer bonds offer higher returns. Conversely, when rates drop, bond prices increase. Understanding how these factors interact can help you choose bonds that align with your financial goals and market conditions.