Yields on U.S. government-issued bonds recently exceeded 5%, a yield not seen since 2007, on the eve of the global financial crisis. The rise in government bond yields is a global phenomenon, occurring against the background of changes in inflation and the sharp change in monetary policy, which included in the past and does not currently include massive bond purchases by central banks.
There are two ways to look at the yield on a bond:
Return to maturity is the total return that the investor will receive on the investment in bonds, if he purchases it at a certain price and holds it until maturity. The yield to maturity calculates all interest and principal payments over the life of the bond.
Current yield is the return that the investor will receive on the investment in bonds if he holds it until the next interest payment date.
Yield is affected by several factors, including:
The interest rate in the economy to which one refers: The higher this interest rate, the higher the yield on a bond is expected to be.
Average Lifespan: Bonds with longer durations usually yield higher returns.
Credit rating: Bonds of companies with higher credit ratings usually yield lower returns.
How can I be exposed to investing in bonds?
One option is the purchase of specific bonds in Israel and abroad. Another option is through mutual funds that specialize in the field, whether actively managed or ETFs or imitation funds that track bond indices in Israel and abroad.
It is worthwhile to seek the help of professionals in order to make appropriate decisions.
Wrong? We'll fix it! If you find a mistake in the article, please share with us