Real Yield
Real yield is one of the most useful variables for understanding the opportunity cost of holding a non-yielding asset such as gold.
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Treasury Prices and Yields Move in Opposite Directions
For an existing fixed-rate Treasury security, a higher market yield requires a lower price and a lower market yield requires a higher price, all else equal.
What it is
A fixed-rate note or bond promises contractual cash flows. When the market return required on comparable cash flows changes, the security’s price adjusts so its yield reflects the new market environment.
Why it matters
This inverse relationship is basic to interpreting Treasury-market headlines: a yield rise is not a price rise, and a bond selloff is normally associated with higher yields.
Example
If newly available market yields rise above the coupon on an existing fixed-rate Treasury, that older security generally must trade below par to offer a competitive yield.
Common mistake
Reading a higher Treasury yield as evidence that the price of the same fixed-rate Treasury also increased.
What to watch
- market yield
- bond price
- coupon rate
- remaining maturity
- fixed cash flows
Key takeaway
For existing fixed-rate Treasuries, price and yield move in opposite directions.
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Related cards
Sources
U.S. Treasury · U.S. Securities and Exchange Commission
Educational and informational purposes only. Not investment advice.