Yield is the income returned on an investment by an investor or financier, it’s the same amount as the interest (or discount) paid on a loan. Yield is typically expressed as an annual percentage rate based on the loan’s cost, current value, or face value. The higher the yield on an investment, the higher the interest (or discount) paid on an investment is.

Yield Advantage

Yield advantage equals the difference between the rates of return (yield) on two different securities issued by the same company, e.g. convertible notes vs common stock.

Yield Basis

The yield basis is a dollar figure calculated by dividing the principal paid annually. It is quoted as a yield percentage, rather than as a dollar value. It allows bonds (or loans) with varying characteristics to be easily compared.

Yield Curve

The yield curve is a chart that depicts how the yields on debt instruments vary as a function of their payback term to maturity. It is used to compare the interest rates (yield) of debt instruments that have equal credit quality but differing maturity dates. There are three main types: normal (upward sloping curve), inverted (downward sloping curve), and flat.

Yield Spread

The yield spread represents the difference between the yields on differing debt instruments of varying maturities, credit ratings, and risk levels. It is calculated by deducting the yield of one instrument from another and is typically expressed in basis points (bps).