Yield is the effective return on a bond (representing a loan). All bonds pay interest on the face value (ie the price at which the bond is issued). Since bonds are traded in the bond market, if you buy it at a price higher than its face value, your effective earning is lower than the interest the bond pays. This effective earning is the yield. The price of a bond rises and falls in the bond market due to changes in interest rates in the economy and demand and supply.

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