I'm a beginner, What do I benefit as an individual investor in bonds, from bond yields increasing ? If I bought a 10 years treasury bond at the beginning of this year with a yield of 1 and then it rose 60%, do I benefit from that? 1) Does my annual yield remain the same 2) Is there a trade market for bonds as in stocks, so if it rises 60%, I sell the stock and my profit will be 60%? Or are there different calculations, can you explain it to me
The yield of a bond relates to the amount of money you make by buying it now and holding it. The payments you get from holding the bond are fixed (that's the par value and coupon payments). So if the yield goes up it means the price has gone down. It means you can get the same payments by spending less money now. If you sell the bond you will be selling it for less money than you bought it for. Another way of seeing this is that the yield of the bonds you own was locked in when you bought them.
Increased yields are bad for owners of bonds. Well, not so much bad as a missed opportunity. They mean if you'd waited longer you could've gotten the same bond for cheaper. The only way you could benefit is by buying more bonds to get some of the extra yield, but your existing bonds are locked in.
If I bought a bond ($1000) with a yield 4%, then its yield decreased to 1%, can I sell the bond and take a "premium"? if there is, what is the equation ? @user253751– huabJun 29, 2021 at 12:41
1@huab If the yield decreased you could resell the bond for a profit. You lock in 4%, you sell it to someone who only locks in 1%, you get the profit they are not getting (not sure if it works out to be 3%) Jun 29, 2021 at 13:57
1Do you like mathematics? Bond math is quite complicated. :) "To estimate how sensitive a particular bond’s price is to interest rate movements, the bond market uses a measure known as duration. Duration is a weighted average of the present value of a bond’s cash flows, which include a series of regular coupon payments followed by a much larger payment at the end when the bond matures and the face value is repaid..." pimco.com/en-us/resources/education/… Jun 29, 2021 at 17:20
1@OrangeCoast-reinstateMonica however we are not talking about interest rate movements, but yield movements. AIUI, yield already includes all that maths in it. Jun 29, 2021 at 17:49
1Duration affects the price movement nonetheless. Think of a 1 year bond vs. a 10 year bond. If the effective yield on each of the bonds has decreased from 4% to 1%, the 10 year bond will have increased in price by much more than the 1 year bond. Jun 29, 2021 at 20:33