Bond Price, Yield, & Risk Calculator

When investing in U.S. bonds, there are several factors to consider to make an informed decision. Here are the key elements:

1. Bond Type

   U.S. bonds come in different forms, each with its own characteristics:

   • Treasury (T-Bills, T-Notes, T-Bonds): These are bonds issued by the U.S. government with different maturity. They are considered credit-risk-free, but not interest-rate-risk-free.
   • Municipal Bonds (Munis): Issued by local governments (cities, states), and they offer federal-income-tax-free advantages.
   • Corporate Bonds: These bonds are issued by companies with relatively stable financial conditions and high credit ratings. They offer higher returns but come with more credit risk than Treasury and Municipal bonds.
   • High-Yield Bonds (Junk Bonds): These bonds are issued by companies with lower credit ratings. They offer highest returns but come with much more risk due to the higher likelihood of issuer default or bankruptcy.

2. Interest Rate Risk
   • Current Interest Rates: U.S. Treasury bonds' yields normally move consistently to the Federal Reserve's interest rates. If the Fed is raising rates, bond prices may fall and yields may rise.
   • Future Rate Expectations: It's important to foresee the direction of interest rates and be prepared, as this can influence the return on bonds, especially if rates rise after purchase.

3. Credit Risk
   • Credit Quality: U.S. Treasury bonds have virtually no credit risk as they are backed by the full faith and credit of the U.S. government. However, for other bonds, such as municipal or corporate bonds, assess the credit rating of the issuer. Bond rating agencies like Moody's, S&P, and Fitch provide these ratings.
   • Credit Spreads: Bonds with lower credit ratings (e.g., junk bonds) typically offer higher yields to compensate for additional risk.

4. Inflation Risk
   • Inflation erodes the purchasing power of fixed-income payments. Consider bonds that adjust with inflation, such as Treasury Inflation-Protected Securities (TIPS), which offer protection against inflation.

5. Maturity and Duration
   • Maturity: The length of time until the bond matures. Short-term bonds (1-3 years) are less sensitive to interest rate changes than long-term bonds (10+ years).
   • Duration: This measures the sensitivity of the bond's price to interest rate changes. Bonds with a longer duration are more sensitive to interest rate changes than those with a shorter duration.

6. Yield and Coupon Payments
   • Coupon Rate: The interest rate paid by the bond. Higher coupon rates typically result in higher periodic income but may be associated with higher price.
   • Yield to Maturity (YTM): The total return expected if the bond is held until it matures, taking into account the bond's current market price, coupon payments, and the time to maturity.
   • Yield to Call (YTC): Relevant for callable bonds. This is the yield assuming the bond is called (redeemed early by issuer) before maturity.

7. Tax Considerations
   • Interest income Taxation: Interest income from bonds is subject to federal & state income tax, except for municipal bonds. Zero coupon bonds, such as T-Bills, still generate interest income and that will be taxed.
   • Capital Gains Tax: If you sell a bond before maturity at a profit, the capital gains may be taxed.

8. Liquidity
   • Bonds can be less liquid than stocks, meaning it might be harder to sell them before maturity without lowering the selling price.

9. Economic and Political Factors
   • Government Debt Levels: Consider the overall economic situation and government debt levels, as excessive debt could influence bond yields or credit risk.
   • Political Stability: Changes in government, fiscal policy, and other political factors can impact bond prices and yields.

10. Diversification
    • U.S. bonds can be a great way to diversify a portfolio, particularly for risk-averse investors. A mix of bond types (T-Bonds, corporate bonds, etc.) across different maturities and credit qualities may help reduce risks.

11. Risk Tolerance
    • Assess your own risk tolerance. Government bonds are considered low risk but offer lower returns. Corporate & high yield bonds, on the other hand, can offer better yields but come with more credit risk.

12. Bond Fund vs. Individual Bonds
    • Bond Funds (including ETF): These allow for easier diversification across different bonds and are professionally managed, but they may charge fees. They also don't have a fixed maturity date, unlike individual bonds.
    • Individual Bonds: These allow you to hold bonds to maturity to match your cash flow needs, but it requires a larger investment to diversify across different types.

By weighing these factors, you should make an investment decision that aligns with your financial goals, risk tolerance, and time horizon.

Suppose you want to price a Treasury bond. In that case, you can input the latest yield below to directly value a bond by finding the Treasury term closest to the remaining term to maturity of the bond you want to price. When you price a bond other than the Treasury, you need to add a spread, varied by bond types and credit ratings, on top of the Treasury yield because of the credit risk premium.

US Treasury Yields (as of )
3-month
6-month
1-year
2-year
3-year
5-year
7-year
10-year
30-year

The most commonly used interest rate benchmark is 10-year Treasury rate. The lastest rate as of is . You can find more historic daily Treasury rates from U.S.Department of the Treasury.

When investing in Treasury securities or Certificates of Deposit (CDs), inflation is a crucial factor to consider because it erodes the purchasing power of your returns over time. Treasury bonds and CDs typically offer fixed interest rates, which may not keep pace with rising inflation. If inflation exceeds the interest earned on these investments, the real value of the returns could be negative. As a result, investors should ensure that the returns on their investments outpace inflation to preserve their purchasing power and ensure long-term financial growth. The inflation trend of the past 30 years are showed below, as of the latest Consumer Price Index (CPI) announced for .

US Annualized Inflation Rate
Past 12 months
Past 2 years
Past 3 years
Past 5 years
Past 10 years
Past 20 years
Past 30 years

One inflation outlook can be used for reference when estimating future short-term inflation. The long-term inflation forecast, however, is difficult to foresee due to economic uncertainty. The historic long-term inflation rate (30-year average ) can still be a reasonable estimate to compare with the current long-term bond yield (30-year Treasury yield ), and you can check if investing in bonds now can accumulate enough return to cover inflation and your retirement needs in the long term.