Bonds
The math of yields, why prices move opposite to rates, and the major categories you can buy.
A bond is a loan you make to a borrower — the US government, a city, or a corporation. They pay you interest (the "coupon") on a schedule and return your principal at maturity.
The three numbers that matter
- Coupon rate. The annual interest rate stated on the bond. Fixed for the life of most bonds.
- Yield. The actual return based on current market price. If you buy below par, yield > coupon; if above par, yield < coupon.
- Duration. Sensitivity to interest-rate changes. A duration of 5 means a 1% rate rise drops the bond ~5%.
Major categories
- Treasuries — Issued by the US government. Considered risk-free for credit purposes.
- Municipal bonds — Issued by states/cities. Federal-tax-free, sometimes state-tax-free.
- Corporate bonds — Issued by companies. Higher yields than Treasuries; rated AAA down through junk (BB and below).
- Mortgage-backed — Backed by a pool of home mortgages. Yield varies with prepayment speed.
| Instrument | Term | Sample Yield | Risk |
|---|---|---|---|
| 3-Month T-Bill | 3 mo | 0.95% | None (US govt) |
| 2-Year Treasury | 2 yr | 1.75% | None (US govt) |
| 10-Year Treasury | 10 yr | 4.40% | None (US govt) |
| 30-Year Treasury | 30 yr | 5.20% | None (US govt) |
| AAA Corporate | 10 yr | 5.40% | Very low |
| BBB Corporate | 10 yr | 6.30% | Moderate |
| High-Yield (Junk) | 10 yr | 9.10% | High |
Sample yields shown — configure an Alpha Vantage key under Settings → Finance to display live Treasury yields.