India, Oct. 22 -- Aarnav Chaturvedi

Recent financial news has highlighted the US Treasury Yield crossing 5 per cent per annum to most people, this sounds like an arbitrary financial metric changing. A more literate reader might understand that this means that the interest rate the government pays on its debt has increased to 5 per cent. However, even this explanation fails to capture how important bond yields are in our global financial system. This article explains what yields are, how they work, and why they matter.

What Is a Bond?

To begin with, we must understand what bonds are and how they differ from loans. When an average person wants to borrow money, they usually approach a bank or other creditor for the amount and are quoted a...