Price–yield seesaw
Definition · Level 8 · Rates, FX & macro
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When market yields rise, an existing fixed-coupon bond falls in price, and when they fall its price rises: the coupon cannot change, so the price does the adjusting. “Bonds sold off” means prices fell and yields rose.
Example
Yields go from 4% to 5%: a 10-year 4% bond falls from 100 to about 92.2.
Where Tradecraft teaches it
Level 8 · Rates, FX & macro, in the lesson “Bonds: price and yield”: Coupon, par, the price–yield seesaw, yield to maturity and premium or discount bonds.
Related terms
- CouponThe interest a bond pays, stated as an annual % of par; in the US usually paid in two semiannual installments.
- Current yieldAnnual coupon ÷ market price: the cash-income return of a bond, ignoring the gain or loss as the price pulls to par at maturity.
- MaturityThe date a bond ends and the issuer repays par.
- Par valueFace amount a bond repays at maturity and on which coupons are calculated, typically $1,000 per bond; prices are quoted as a percent of it.
- Premium vs discount bondA bond priced above par because its coupon exceeds its YTM (yield to maturity), or below par because its coupon is lower than its YTM.
- Price in 32ndsUS Treasuries are quoted with the fraction of a point in 32nds: 98-24 means 98 + 24/32 = 98.75% of par.