Ask Terry Questions coupon rates vs yield

coupon rates vs yield

By Terry Savage on February 09, 2023 | Investments

Could you please explain coupon rates on Treasury Bonds versus yields what is better

Terry Says

If you purchase new Treasury bonds, you will earn the stated interest rate set at that auction –the coupon rate.
If you purchase an existing bond, perhaps with a lower rate, then you will pay a discounted price in the open market — so that the true yield (on the money invested) approximates the current coupon rate.

Yep, it’s a complex explanation, the difference between coupon and yield to maturity. And it can be made even more complex in purchasing corporate bonds, which might be called in before maturity!

But if you’re buying at the weekly or monthly Treasury auctions, through, there is basically no difference between the two.



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