Bond Yield?

Question

How exactly do bonds work? Who sets the nominal (flat) yield of a bond? Does the Federal Reserve set the nomial yield for all bonds (that is, nomial yield for all bonds is just the interest rate set by the Fed)? And that the only thing that's different among bonds is the current (running) yield, which is controlled by the market? This is what I am getting from the definitions on this page: http://www.finance-glossary.com/terms/bond-yield.htm?ginPtrCode=00000&id=166&PopupMode=false

I am asking because I am reading a stock investing book that tells me to look for stocks with earnings yields at on near THE (caps mine) bond yield, and I have no idea if that means there is only one bond yield for all bonds or what. Or maybe the author is talking about the treasury bond (t-bond) yield. I don't know. Thanks for the help.

Answer 1

Actuall what the investment book you read tells is to invest in stocks that give earnings yield which is equal to earnigns per share/Market price of the stock which is equal to bond yield here probably corporate bonds which has higher yields. If it was t-bonds then the yield on it is very low due to low risk factors. Stocks has high risk and higher yield should be expected. So corporate bonds is what he referes to. Any way bond yield is = current yield+ capital gains yield. Current yield=coupon/bond price at present. Capital gains yield is priceo of bond today - Price of bond when purchased/Price of bond when purchased. This yield on bond should be the one you choose as a land mark on which you should make the stock selection. That is what it means from what you say what is written in the book. Stock should yield always higher return than bonds, since stocks are riskier with not secured enough like bonds.
Stock yield = Dividend yield + Capital gain yield.
=Dividend/Market price of stock +
Market price - bought price/bought price.

Answer 2

OK, you are looking for investment advice in general. Bonds are actual ownership in the company. When a stock goes belly up, the bond investers have a legal leg up on the stock holders. What the writer is likely refering to is the interest rate on GOVERNMENT BONDS. That is considere the Gold Standard for investment. The US Government has never defaulted on its debt -- ever. So the rate on US Treasuries are considered safe. Everything else is compared against that rate. Contact me if you would like to discuss investing. I have been doing it for quite a while.

Answer 3

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Answer 4

go to http://bond-yields.com