what you yielding?

"Yield" was a term originally used by the agricultural industry and would help farmers determine the productivity of their land. In 'olde' English, it meant "to return" or "to pay".

A yield in financial markets usually means the earnings generated and realised on an investment over a particular period of time (usually annually), expressed as a %.

In equities, it is typically with reference to dividends and is a simple equation:

(Dividend Per Share/Share Price) x 100 (to express as a %)

It's a quick and simple metric to stack a stock up against its industry, market, peer group, etc.

Here is where it gets a bit more tricky.

How often do you get into a conversation about a bond (Gilt, Treasury, Index-Linked, Corporate) or a bond fund and the term "yield" arises?

Here are the different calculations this could be in reference to:

1. Current Yield (as above with equities but with coupon payments)
2. Yield To Maturity (Total return if the bond was held to maturity)
3. Yield To Call (If the bond is callable before the maturity date)
4. Yield To Worst (Lowest potential yield without the issuer defaulting)
5. Yield Spread (Difference between the yield on two bonds, typically referenced between a corporate and Govt bond)
6. Nominal Yield (Interest rate stated on the bond, using the coupon)
7. Real Yield (as above but adjusted for inflation)
8. Effective Yield (Accounts for the compounding of interest in the bond if the issuer pays more frequently than annually)

There are others but I have left them out to avoid further confusion in this post.

The bottom line here is that when you are either working out yield calculations yourself for bonds or in discussions with corporates/bond managers, always make sure you are being specific about what "yield" is being referenced. It can be tricky and confusing and create scenarios where you are not comparing like-for-like.