What is nominal yield?
The interest or 'coupon' that an investor can expect to receive from a bond. The nominal yield is based on the original value of the bond, rather than its current market value. The interest rate is fixed and lasts for as long as the bond does.
Key takeaways
Nominal yield is the fixed interest or 'coupon' a bond investor receives, based on the bond's original par value rather than current market value, remaining constant throughout the bond's duration.
Also referred to as 'nominal rate', 'coupon yield' or 'coupon rate', the nominal yield is often included in the bond's name to help investors quickly identify bond types and available returns.
Governments and companies issue bonds to raise funds for new projects, with investors lending money and receiving regular interest payments plus their original investment returned at the fixed period's end.
Where have you heard about nominal yield?
The phrase is used by investors when tallying up the returns they can expect from a particular bond. A bond's nominal yield may also be referred to as its 'nominal rate', 'coupon yield' or 'coupon rate'.
What you need to know about nominal yield.
Governments and companies issue bonds in order to raise money, which is then used to fund new projects. A bond investor effectively lends the issuer money. As well as receiving interest at regular intervals, they get their original investment back at the end of a fixed period.
The nominal yield offered by a bond is often included in its name. This helps investors to quickly work out both the type of bond being offered and the returns available.
Because it's based on the original 'par' price of a bond instead of its current value on the market, the nominal yield doesn't change.