Stocks go up and down in value as you know and that is how you make the majority of your investment (buying low and selling high). However, many stocks pay Dividends....This is called the yield.
So say that you see McDonalds has a 2.5% yield... It means you will make 2.5% money from holding McDonalds a year in dividends. (Almost as if you had it in a bank account that paid 2.5%).
The Yield on bonds is what it pays you ever year in income. So if you own a 5% yield bond you will make money as if you have money in a 5% savings account.
Now Bonds are very sensitive to interest rates...In the late 70% I think interest rates were like 11% or something so you can imagine how great it would be to own bonds back then making an 11% return.
Now here is where it gets complicated... When you purchase a bond when interest rates (Set by the federal reserve) are high...................And interest rates drop........Your bond is worth more money on the open market and you can sell the bond for a profit.
EX: (wouldn't you love to have a bond paying 10% right now in this environment...well expect to pay extra)
When you purchase bonds now when interest rates are at historic lows....and interest rates rise...Your bond is worth less..
EX: (If you buy a bond now when interest rates are low...when rates rise...someone would rather by a new bond issued at a higher rate then buy yours so you would have to sell at a discount).
Corporate bonds tend to pay more then treasury bonds because they are higher risk...
well im reading intelligient investor and and one thing graham talks alot about is bonds. im like 10% through and he is talking about the market and regarding 1970s regarding bonds and stocks. when he talks about comparing the stock earnings yield and bond yield it is bond yield that it increasing leading up to a bear market. when he talks about comparing the stock and bonds , is he takling about us treasury bonds or corporate bonds?
