The yield elasticity of bond value is the
elasticity of the market value of a
bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemica ...
with respect to its
yield—the
percentage change in bond value divided by its causative percent change in the
yield to maturity
The yield to maturity (YTM), book yield or redemption yield of a bond or other fixed-interest security, such as gilts, is an estimate of the total rate of return anticipated to be earned by an investor who buys a bond at a given market price, h ...
of the bond. Equivalently, it is the
derivative
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. ...
of value with respect to yield times the (interest rate/value). This is equal to the
Macaulay duration
In finance, the duration of a financial asset that consists of fixed cash flows, such as a bond, is the weighted average of the times until those fixed cash flows are received.
When the price of an asset is considered as a function of yield, dur ...
times the
discount rate, or the
modified duration
Modified may refer to:
* ''Modified'' (album), the second full-length album by Save Ferris
*Modified racing, or "Modifieds", an American automobile racing genre
See also
* Modification (disambiguation)
* Modifier (disambiguation)
Modifier may re ...
times the
interest rate
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited, or borrowed (called the principal sum). The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, ...
.
If the elasticity is below -1, or above 1 if the absolute value is used, the product of the two measures, value times yield or the interest income for the period will go down when the yield goes up.
{{DEFAULTSORT:Yield Elasticity Of Bond Value
Elasticity (economics)
Fixed income analysis
Bond valuation