Bond yields but stock prices

J

JoeRoberts

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I understand bond yields/prices etc but the terminology used for investors has always perplexed me and I guess confuses a lot of people.

Why are bonds spoken about in terms of yields, yet stock prices in terms of price changes ?

People intuitively think if they own something and it goes up it is good thing, but if bond yields go up, an investor who holds them currently is losing. Why do market commentators not discuss bond prices rather than bond yields. "Today bond prices rose " rather than " Bond yields fell today". It is not consistent with the way stock markets are discussed.

Does anyone else think like me ?
 
There is an inverse relationship between bond prices and yields.

So to say "bond yields fell today" is just another way of saying "bond prices rose today".

The same is not true of equities/dividends.
 
Bonds pay a fixed coupon so changes in the price of the bond is reflected in changes in the yield.

If yields increase, the current bond owner doesn't benefit from it. In fact they have lost out as the bond's price has fallen.
 
Andy836 said:
Bonds pay a fixed coupon so changes in the price of the bond is reflected in changes in the yield.

If yields increase, the current bond owner doesn't benefit from it. In fact they have lost out as the bond's price has fallen.
Click to expand...
Exactly. So why do commentators not say bond prices fell today.
 
JoeRoberts said:
Exactly. So why do commentators not say bond prices fell today.
Click to expand...

Because comparing yields conveys more information. It's gives a clear indication of what the issuer would pay (and what new investors demand) if they came to market now.

If someone says a bond fell 1 point to 99 today it doesn't really tell you anything as you don't know the coupon.
If someone tells you the yield increased 1% to 5% today it tells you what the issues borrowing costs (and investor demands) are in the current environment.
 
[QUOTE="Andy836, post: 1567884, member: 82924"

If someone says a bond fell 1 point to 99 today it doesn't really tell you anything as you don't know the coupon.
.[/QUOTE] It tells the investor that their fund value has dropped by 1%. That is the information a guy with 30% of his ARF in bonds wants to know.
 
[/QUOTE] It tells the investor that their fund value has dropped by 1%. That is the information a guy with 30% of his ARF in bonds wants to know.[/QUOTE]
Not really Joe.

Don't forget that your bond fund is now buying more income (yield) at a lower price. Long-term investors shouldn't worry unduly about rising yields.
 
Did Warren Buffett not warn investors about investing in bonds in his annual letter, he is basically not an investor in bonds in today's market with historical low yields, however he did say he should have invested in them back in 1982 when yields were very high and interest rates have basically being dropping since then. Maybe he is warning that the historic low interest era is over
 
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