Others have explained it, but I'll give it my go: A bond has these intrinsic components: -Face value: principal amount the coupon/interest is calculated on -

Others have explained it, but I'll give it my go: A bond has these intrinsic components: -Face value: principal amount the coupon/interest is calculated on -Maturity: Term/length of the bond -coupon[0]/interest rate: periodic payment based on the face value, often once or twice a year. If I own a bond, I can sell it like I would my car or a share of stock. If I have a face value $1000, 10 year, 10% coupon bond that has 6 years left, but I need cash now, I might sell it to you for less than its worth to close the deal faster. So if you buy it for $500, none of the intrinsic components change. You're still going to get 10% of $1000 annually. But on the $500 you spent, to you it's really ~20%. That's 'yield'. The lower the sale price the higher the yield. FDIC insurance only goes up to 250k but if you're a big company, what do you do if you want to keep 10 million cash on hand as safely as possible? You buy US treasury bonds because they're the safest thing you can and every other big company is doing the same so there's always demand and you can trade them for cash extremely easily. Think of them like 'big boy dollars'. Depending on the supply/demand any given day, the going price for a particular face value/maturity fluctuates, and so therefore the yield does as well. This is seen as a proxy to market sentiment and used as a benchmark for calculating other rates. In practice most people will just use the term 'interest rates' to refer to it, even though 'yield' is technically correct. [0] bonds used to have literal paper tear-off coupons that you brought to the bank to get your payment.