Is yield same as interest rate??
Generally, it’s the rate of return required for any investment and it includes the risk premium. So for instance, if you are calculating the PV of bond payments, you would discount it at the “yield”, which is sort of like an interest rate. There might be other meanings depending on the context though.
^ Agree - it’s a word that depends deeply on context. I think “interest rates” also depends a lot on context.
Yield is the actual return earned on an interest-bearing asset if held to maturity. As far as fixed income goes, the text (Reading 61) states that ‘int. rate’ and ‘yield’ can be used interchangably (however confusing).
Why is it then that the Bond price falls when the yield increases…it should be directly proportional and not inverse??
When yield increases, you must discount the future cash flows by the higher yield, thus the price is lower.
savage Wrote: ------------------------------------------------------- > Why is it then that the Bond price falls when the > yield increases…it should be directly > proportional and not inverse?? Have you finished reading fixed income? 
Bonds and yields are INVERSELY correlated. You should think about yield in relation to the financial product you are looking at. It might mean different things to different people, but given a specific scenario and product, it means the same thing to everyone in finance and basically that is what you need to know too.
Yield is not coupons!
Coupon yield is pretty much coupons…
yield is the constant compound interest rate that discounts the cash flows of a security to its present value. we use it to mean return because we are pricing an asset based on a “10%” yield or compound growth of cash flows each year.
very simply put yield is the rate of return you expect to make on the bond if you hold it to maturity and interest rates stay the way they are at the time you buy the bond. However since interest rates never stay constant yield changes with time. for a buyer high yield is preferred (risk and return/yield is the inherent principle in bond pricing). Emerging market bonds are riskier and hence investors demand a higher yield as indicated by the flow of funds from developed to emerging markets - in search of higher yieds (you can borrow in the US for almost 0% and make 7%+ yield in emerging markets - you also have higher default risk, currency risk, etc). Coupon/Market price = current yield, is a good indicator of the inverse relation between interest rates and price Think of a bond issued at par $1000 with 10% Coupon = YTM(market rate), Current Yield = 10% (100/1000) So now if the bond price drops to say 800 the current yield = 100/800 = 12.5% and a bond buyer wants this bond because of higher yield because he can buy a $1000 bond for $800. If the price goes up to 1200 then the current yield drops to 100/1200 = 8.33% and the bond holder is getting $1000 by paying $1200 When you are buying a bond you are looking for high yield, once you have bought the bond and are looking to cash out of your investment then you want the price to rise. When most people are talking yields they are talking YTM - the total return on the bond = capital appreciation + coupon you will receive if you hold the bond to maturity and assuming coupons are reinvested at the same rate