We are independent & ad-supported. We may earn a commission for purchases made through our links.

Advertiser Disclosure

Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.

How We Make Money

We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently from our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What does "Par Yield" Mean?

By Justin Riche
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Par yield, also referred to as the par rate, is when the coupon rate and the yield of a bond are equal and the bond price will be the same as its nominal value, also called its par value. The par value is the payment made to a bond investor at maturity, and the coupon rate is the annual interest rate that he or she receives. The yield, or yield to maturity (YTM), is normally the estimate of the average return on a bond investment if the bond is not sold before it matures. The YTM is required to calculate all future payments in present terms. Par yield can happen because a bond can be priced at par, below par or above par, and when the bond is at par, the yield and coupon rate will be the same.

Similarly to many other instruments in finance, bond prices and yields rise and fall as a result of many factors that influence supply and demand. One has to remember, however, that bond yields and prices have an inherent inverse relationship; in other words, at the rise of bond prices, for example, bond yields will drop, and vice versa. For instance, if a bond is priced above par, it usually will have a coupon rate that is higher than the yield. Theoretically, the yield will have to rise to prompt a drop in the price until the price reaches par value. At the same time, the coupon rate and yield will be equal, and one would have what is called par yield.

When bonds are quoted at the market, among other particulars, they will show the coupon rate, the bond price and the yield. To illustrate the point of a bond with a par yield, one might consider use a hypothetical example. A bond might be priced above par at 103.31 and might have a coupon rate of 5.75 and a yield of 4.74. An upward move in the yield, which then eventually reaches the level of the coupon rate at 5.75, will drive the bond price down to par or 100, and then a par yield would have been attained. Otherwise, the price will be the one to decline to reach par while spawning an upsurge in the yield until it equals the coupon rate.

In practice, it is rare to encounter a bond trading precisely at par. Some bonds will trade very near to par, between 99 to 101, for example. When bonds are trading between these two values, they are considered to be more or less at par.

A type of bond called a zero-coupon bond is a good example of a bond that is sold at a discount or below par. Unlike many other bonds, this type does not pay any coupons to the holder between the purchase day and maturity. When it matures, the investor will receive the par value, which can allow him or her to realize a profit from the difference of the discounted price and the par value.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.