Yankee bonds
Dollar-denominated bonds sold in the U.S. by foreign companies or government entities.
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Yield
The annual rate of return on an investment, as paid in dividends or interest. It is expressed as a percentage, generally obtained by dividing the current market price for a stock or bond into the annual dividend or interest payment. As the price of a stock or bond declines, its yield rises. So a stock selling for $20 a share with an annual dividend of $1 a share yields an investor 5%. But if the same stock falls to $10 a share, its $1 annual dividend yields 10%. See "When Yield Goes Up, Price Goes Down."
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Yield curve
This is a graph showing the yields for different bond maturities. It can be used, not only to show where the best values in bonds are, but also as an economic indicator. A normal yield curve is upward sloping, with short-term rates lower than long-term rates. An inverted yield curve is downward sloping, with short-term rates higher than long-term rates. A steep upward sloping yield curve indicates the bond market anticipates an economic expansion. An inverted yield curve anticipates an economic decline. To learn more, check out our "Living Yield Curve."
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Yield spread
The difference of the yield between various securities. Yield spreads are often used to compare bonds of different maturities or credit ratings. Bonds with lower credit ratings and longer maturities tend to have higher yields than those with good ratings and short maturities. In evaluating a lower quality bond, you must decide whether the yield spread to better rated issues is worth the extra risk of default. See "How Bonds Behave."
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Yield to call
The yield on a bond assuming the bond is redeemed by the issuer at the first call date. A bond's call provision is detailed in its prospectus. Yield to call differs from yield to maturity in that yield to call uses a bond's call date as the final maturity date (most often, the first call date). The price at which an issuer can call a bond is the call price. The call price generally includes a call premium that is greater than the bond's face value. Conservative investors calculate both a bond's yield to call and yield to maturity, selecting the lower of the two as a measure of potential return. See "How Bonds Behave."
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Yield to maturity
Yield to maturity is similar to current yield on a bond, but it also takes into account any gain or loss of principal at maturity. For example, if a $1,000 par bond was bought at a discount of $900, at maturity there would be a $100 gain. Likewise, if a $1,000 par bond is purchased for $1090, there will be a $90 loss in principal at maturity. Yield to maturity is a precise measure that allows you to compare bonds with different maturities that sell for more or less than par. The trouble is, it is a complex calculation that isn't printed in the paper, so you'll have to get it from your broker or bond dealer. See "When Yield Goes Up, Price Goes Down."
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