Fundamentals
NZ bond yields explained: coupon, running yield and yield to maturity
Three different numbers all get called "the rate" on a bond, and they can differ by more than a full percentage point on the same security. Only one of them is your return.
Rather see the actual numbers? We'll email the current indicative yield to maturity for every NZ bond we track.
Send me current yieldsThe three numbers
The coupon is fixed at issue and never changes. A bond issued with a 6.00% coupon and $1.00 face value pays six cents a year, forever, until it matures — regardless of what the bond later trades for.
The running yield is the coupon divided by the price you actually pay. Buy that same bond at 96 cents and your running yield is 6.25%; buy it at $1.05 and it is 5.71%. This tells you the income, but ignores what happens at maturity.
The yield to maturity is the complete picture: coupon income plus the capital gain or loss between what you paid and the face value you receive at maturity, expressed as an annual rate. This is the number to compare across bonds and against a term deposit.
| Price paid | Coupon | Running yield | Yield to maturity |
|---|---|---|---|
| $0.96 | 6.00% | 6.25% | 6.62% |
| $1.00 | 6.00% | 6.00% | 6.00% |
| $1.05 | 6.00% | 5.71% | 5.24% |
Illustrative only: a five-year bond with a 6.00% annual coupon and $1.00 face value. Real yields depend on the exact settlement date, accrued interest and payment frequency.
Why bond prices move
A bond's coupon is locked in, so the only way the market can reprice it is by changing the price. When interest rates rise, newly issued bonds pay more, so existing bonds must get cheaper for their yields to keep up. When rates fall, existing bonds become more valuable.
How much they move depends on how long you have to wait. A twenty-year bond has two decades of fixed payments to reprice, so a one-percent shift in rates moves its price far more than the same shift moves a two-year bond. Long bonds pay you more, and they also swing harder.
None of this matters if you hold to maturity and the issuer pays. You get the coupons and the face value, and the yield you locked in on the day you bought is the yield you get. Price volatility only becomes a real loss if you are forced to sell early.
The other spread: credit
Two New Zealand bonds maturing in the same year can yield very differently. The gap is the credit spread — the market's price for the risk that the issuer does not pay.
A Crown-guaranteed Kāinga Ora line sits close to the government curve. A regulated network like Chorus sits a little above it. An unrated retirement village developer sits well above that. When you see an unusually high yield on this site or anywhere else, the first question is always what the market knows that makes it necessary.
Every yield shown on our bond listings is an indicative yield to maturity alongside the coupon at issue, so you can see the gap for yourself.
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