Bond Yields, Rates, and Pricing: How they all work

Many new investors are surprised to learn that a bond’s price fluctuates and changes on a daily basis, just like that of any other publicly-traded security.

Glad we’ve got bond quotes down pat. Now, it’s time for bond rates and pricing. We’ll cover what a yield is and how bond rates are calculated.

What is a bond yield?

When people talk about the yield of a bond, they are generally referring to the term yield-to-maturity (YTM). The yield-to-maturity is the average annual return you can expect to realize by holding the bond to maturity, or to the end of its life span.

So, imagine you have a bond with a face value of $100 and it pays a 5% coupon yearly for 5 years. That means you are paid $5 every year plus you get your $100 back at the end. If at the end of 5 years, the bond’s price is still $100 then your coupon rate (5%) and your YTM are the same (5%). After all, if you earn 5% yearly for years, then your average annual return is 5%.

Where YTM differs is that it takes into account the bond’s current price. So if that changes, if it deviates in any way from $100, then your YTM will change. It will no longer be 5%.

So bonds can definitely be risky. Companies collapse all the time. Even government bonds carry some, even if U.S. Treasuries are often touted as being “risk-free”. If you buy a U.S. Treasury bond and interest rates rise, the price of the bond falls and if you sell, you will LOSE money. That’s a risk you have to bear. Of course you could always get around that by holding the bond to maturity.

Hold on, we just glossed over the fact that when interest rates rise, the price of a bond falls.

Imagine again that you own a bond with a face value of $100 and it pays a 5% coupon yearly for 5 years. We’ll call you Neo. You’ve literally just bought it but then all of a sudden, there’s a liquidity crunch and all the interest rates out in the world (this is very simplified, but bear with us) rise to 8%.

Picture yourself as a buyer of bonds in this environment, where companies are strapped for cash and are willing to offer 8% to people with the money to lend to them. Now you come across your other self, Neo who’s trying to offload a bond. He offers you a bond with a 5% coupon yearly for 5 years.

Would you, a buyer of bonds, buy that bond?

Hell no. Everyone else is offering you 8%. Now because you bought the bond and the coupon rate was agreed upon, it’s not like you can change that. Instead you negotiate on the only thing you can: the price of the bond. Thus, you offer him the bond at a discount. That’s why when interest rates go up, prices go down.

What are bond rates?

Bond rates are really just bond yields. The terms are used synonymously – don’t get confused!

How are bond prices determined?

It’s all about pricing.

In order to understand the pricing of bonds, start by logging in to your favorite financial website. Bond prices do fluctuate, so the price you see quoted may change several times throughout the next business day. Usually, bonds are broken down into municipal and corporate bonds.

When you are buying a bond from a market and not directly from the treasury or company, you pay either a premium or a discount. Here, we see the market price is 103.66. This means that I can buy a bond with a face value of $1,000 for $1,003.66. This is considered a premium, and is set by the market. If the price had been less that $100, it would be considered a discount.

Just like stocks, the price of a bond is determined by a few factors, but really comes to down to two main things: bid and ask (or supply and demand). If more people want to buy the bond then sell it, the price goes up and there will be a premium. If there are more people who want to sell the bond than buy it, the price will go down and there will be a discount.

There’s a lot to know about bond rates and pricing and it can feel overwhelming – we know. If learning about bonds interests you, check out our Investing in Different Markets course!


The Best Stock Newsletters as of June 29, 2025

Ranking of Top Stock Newsletters Based on Last 3 Years of Stock Picks

We are paid subscribers to dozens of stock newsletters. We actively track every recommendation from all of these services, calculate performance, and share the results of the top performing stock newsletters whose subscriptions fees are under $500. The main metric to look for is "Excess Return" which is their return above that of the S&P500. So, based on last 3 years ending June 29, 2025:

RankStock NewsletterStock
Picks
Average
Return
Excess
Return
Percent
Profitable
Max %
Return
1.Seeking Alpha logo
Alpha Picks
7663%40%73%969%
Summary: 2 picks/month based on Seeking Alpha's Quant Rating; Retail Price is $499/yr. See details in our Alpha Picks Review.July, 2025 Promotion:
Save $100
2.Moby logo tiny
Moby.co
30843.3%12.3%74%1764%
Summary: 60-150 stock picks per year, segmented by industry; Retail Price is $199/yr. Read our Moby Review.July, 2025 Promotion:Next pick free!
3.Motley Fool logo
Stock Advisor
7241.2%6.9%78%258%
Summary: 2 picks/month and 2 Best Buy Stocks lists focusing on high growth potential stocks over 5 years; Retail Price is $199/yr.
Read our Motley Fool Review.
July, 2025 Promotion: Get $100 Off
4.Zacks logo
Value Investor
3917.5%6.1%38%410%
Summary: 10-25 stock picks per year based on Zacks' Quant Rating; Retail Price is $495/yr. Read our Zacks Review.July, 2025 PROMOTION:$1, then $495/yr
5.Motley Fool logo
Rule Breakers
6640.0%4.7%61%311%
Summary: 2 picks/month focusing on disruptive technology and business models; Lifetime average return of 355% vs S&P500's 149% since 2005; Now part of Motley Fool Epic. Read our Motley Fool Epic Review.Current Promotion: Save $200
6.TipRanks logo
TipRanks SmartInvestor
12110.6%3.7%55%340%
Summary: About 1 pick/week focusing on short term trades; Lifetime average return of 355% vs S&P500's 149% since 2015. Retail Price is $379/yr. Read our TipRanks Review.Current Promotion: Save $180
7.TheStreet logo
Action Alerts Plus
39420.0%3.4%57%220%
Summary: 100-150 trades per year, lots of buying and selling and short term trades. Read our Jim Cramer Review.Current Promotion: None
8.Motley Fool logo
Stock Advisor Canada
3632.3%0.5%69%378%
Summary: 1 pick/month from the Toronto stock exchange; Retail Price is CD$199/yr. Read our Motley Fool Canada Stock Advisor Review.July, 2025 Promotion: Save $100
Top Ranking Stock Newsletters based on their last 3 years of stock picks' performance through May 31, 2025 as compared to S&P500. S&P500's return is based on average return of S&P500 from date each stock pick is released. NOTE: To get these results you must buy equal dollar amounts of each pick on the date the stock pick is released. Investor Business Daily Top 50 based on performance of FFTY ETF.
Build your wealth faster with best stock picks: See our new June 29, 2025 ranking of the Best Stock Newsletters.

The Best U.S. Brokerages as of June 30, 2025

Ranking of Top U.S. Stock Brokerages Based on Fees, Features, and Sign-Up Bonuses

We are experienced users of dozens of stock trading platforms. We stay up to date on these platforms' service offerings, subscription fees, trade commissions, and welcome bonuses. The brokerages listed below are for U.S.-based investors, and are ranked in order of overall value received after taking advantage of their sign-up and/or referral offers.

Rank Brokerage Fees Features Sign-Up Bonus Read Our Review
1. robinhood-review Robinhood $0 ✅ U.S. stocks, ETFs, options, and cryptos
✅ Now 23 million users
✅ Cash mgt account and credit card
Free stock up to $200 with new account, plus up to $1,500 more in free stock from referrals Robinhood Review
2. Moomoo $0 ✅ Free Level 2 Nasdaq quotes
✅ Access to U.S. and Hong Kong markets
✅ Educational tools
60 free stocks with $5k deposit; or 25 free stocks with $2k deposit Moomoo Review
3. Interactive Brokers $0 ✅ Access 150+ global stock exchanges
✅ IBKR Lite & Pro tiers for all
✅ SmartRouting™ and deep analytics
Refer a Friend and Get $200 Interactive Brokers Review
4. Robinhood Gold $5 ✅ 4% APY on cash
✅ 3% IRA match
✅ Level II data
✅ No interest on first $1,000 of margin
 Save with Annual Fee Robinhood Gold Review
5. M1 Finance

$3 monthly

10k in assets

✅ Automated investing “Pies”
✅ Banking & low-interest loans
✅ No trading fees with scheduled trades
$75-$500 Tiered Sign-up bonus M1 Finance Review
6. Webull $0 ✅ Extended-hours trading
✅ Great charts and screeners
✅ Commission-free options trading
$10 and a 30-day complimentary subscription to Webull premium;
$200-$30,0000 Tiered Sign up bonus
Webull Review
7. Public $0 ✅ Fractional shares
✅ No payment for order flow model
✅ “Alpha” tool with earnings calls
$100-$10,000 Tiered Cash Account Transfer Bonus Public Review
8. Composer $32 a month ✅ Invest in automated strategies
✅ Build custom strategies easily
✅ IRAs
$49 per successful referral with no limit on the number of referrals Composer Review
9. Stash

Growth $3;

+ $9 Month

✅ Stock-Back® debit card rewards in fractional shares
✅ Auto-invest and budgeting tools
✅ Curated theme portfolios
$5 when you invest $5 Stash Review
10. Acorns

Bronze $3; Silver $6; Gold $12 a month

✅ Automated investing portfolios
✅ ESG curated portfolios
✅ Acorns Early Invest for Kids' Accounts
Get a $20 bonus when you start saving & investing Acorns Review
11. Etoro $0 ✅ CopyTrading™ to follow top traders
✅ Trade U.S. stocks, ETFs, and crypto
✅ Trades with themed portfolios
$10 Crypto Sign-Up Bonus Etoro Review
12. Cash App $0 ✅ U.S. stocks and bitcoin; $1 minimum
✅ Peer-to-peer payments
✅ Beginner-friendly financial ecosystem
Up to $200 in free overdraft coverage and earn 4% on cash Cash App Review
Fees, features, sign-up bonuses, and referral bonuses are accurate as of May 31, 2025. All information listed above is subject to change.