Bonds, Rates & the Economy

Par value is the face amount of a bond — the fixed principal the issuer promises to repay at maturity, and the base its coupon rate is applied to.

The annual interest a bond promises to pay, stated as a percentage of its face value rather than of the price paid for it.

Yield to maturity is the single annualized rate that makes a bond's remaining coupon and principal payments worth exactly its current market price.

Duration measures how sensitive a bond's price is to a change in interest rates — roughly the percent the price moves per 1% shift in yield.

Convexity measures how much a bond's price-yield relationship curves, correcting duration's straight-line estimate of price moves.

The extra yield a bond with default risk pays over a government bond of the same maturity, quoted in basis points as compensation for that risk.

A credit-quality dividing line: bonds rated in the safer tiers are investment grade; everything rated below that line is high yield.

A line plotting the yields of bonds that share a credit quality but differ in maturity, showing what the market charges for lending over different spans of time.

When shorter-term government bonds yield more than longer-term ones, flipping the yield curve's normal upward slope.

The interest rate a central bank sets as its main lever on the economy, targeting what banks charge each other to borrow overnight.

A published index tracking the average price level of a basket of consumer goods and services; its percentage change is the headline inflation rate.

Nominal figures are measured in the dollars of the day; real figures are adjusted for inflation so amounts from different years can be compared.