In the example on this page, a yield was issued at a yield of 7.18% at the beginning of a year and was forecasted to have a yield of 6.8% at the end of a year.

The resulting value gain from the beginning of the year and the end of the year is $5,317, which "is made up of the unwinding of discount (the increase in present value as it nears maturity) plus capital gain portion that results from positive movement in market yield on the bond".

But the yield was decreased from 7.18% to 6.8%. So why is it a positive movement?

1 Answer 1


Bonds are a bit backwards in that the end amount is fixed (if you hold to maturity) so the profit (yield) is inversely related to the purchase price.

A decrease in yield means an increase in price since you have to pay more to get the same redemption value.

If you own a bond, a decrease in yield is good, since your bonds are worth more. If you want to buy bonds, an decrease in yield is bad since it will cost you more to buy them.


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