Please help me understand reasons for differences in Government Bond Yields
"The real question is what does FT mean by ""Eurozone Bond"". There is no central European government to issue bonds. What they seem to be quoting is the rate for German Bunds. Germany has a strong economy with a manageable debt load, which means it is a safe Euro denominated investment. Bunds are in high demand across the Eurozone, which drives their price up, and their yield down. Greek 10yr bonds, which are Euro denominated, are yielding over 8%." These are yields for the government bonds. EuroZone interest rates are much lower (10 times lower, in fact) than the UK (GBP zone) interest rates. The rates are set by the central banks.
"$36 dividend/900 DJIA = 4% 5.5% bond yield = ($36 dividend/660 DJIA) Graham wrote this at a very different time in financial markets- interest rates were much higher, and the DJIA much lower. In addition, bonds were yielding more than stocks, unlike today when the DJIA % the 10yr Treasury yield 2.63% and 2.13% respectively. In addition, his ""weigher of the odds"" suggests waiting to invest until equity prices are lower (usually dividends aren't reduced), and therefore the DJIA dividend yield would rise relative to bond yields." This is a bit of an open-ended answer as certain assumptions must be covered. Hope it helps though. My concern is that you have 1 year of university left - is there a chance that this money will be needed to fund this year of uni? And might it be needed for the period between uni and starting your first job? If the answer is 'yes' to either of these, keep any money you have as liquid as possible - ie. cash in an instant access Cash ISA. If the answer is 'no', let's move on... Are you likely to touch this money in the next 5 years? I'm thinking house & flat deposits - whether you rent or buy, cars, etc, etc. If yes, again keep it liquid in a Cash ISA but this time, perhaps look to get a slightly better interest rate by fixing for a 1 year or 2 year at a time. Something like MoneySavingExpert will show you best buy Cash ISAs. If this money is not going to be touched for more than 5 years, then things like bonds and equities come into play. Ultimately your appetite for risk determines your options. If you are uncomfortable with swings in value, then fixed-income products with fixed-term (ie. buy a bond, hold the bond, when the bond finishes, you get your money back plus the yield [interest]) may suit you better than equity-based investments. Equity-based means alot of things - stocks in just one company, an index tracker of a well-known stock market (eg. FTSE100 tracker), actively managed growth funds, passive ETFs of high-dividend stocks... And each of these has different volatility (price swings) and long-term performance - as well as different charges and risks. The only way to understand this is to learn. So that's my ultimate advice. Learn about bonds. Learn about equities. Learn about gilts, corporate bonds, bond funds, index trackers, ETFs, dividends, active v passive management. In the meantime, keep the money in a Cash ISA - where £1 stays £1 plus interest. Once you want to lock the money away into a long-term investment, then you can look at Stocks ISAs to protect the investment against taxation. You may also put just enough into a pension get the company 'match' for contributions. It's not uncommon to split your long-term saving between the two routes. Then come back and ask where to go next... but chances are you'll know yourself by then - because you self-educated. If you want an alternative to the US-based generic advice, check out my Simple Steps concept here (sspf.co.uk/seven-simple-steps) and my free posts on this framework at sspf.co.uk/blog. I also host a free weekly podcast at sspf.co.uk/podcast (also on iTunes, Miro, Mixcloud, and others...) They were designed to offer exactly that kind of guidance to the UK for free. "If you owned a bank how would you invest the bank's money?  Typically banks are involved in loaning out money to businesses, people, and government at a higher interest rate then what they are paying to depositors.  This is the spread and how they make money. If the bank determines that the yields on government bonds is more attractive then loaning the money out to businesses and people then the bank will purchase government bonds.  It can also decide the other way.  In this manner the mortgage and bond markets are always competing for capital and tend to offer very similar yields. Certain banks have the unique privilege of being able to borrow money from the FED at the Federal Funds rate and use this money to purchase government debt or loan it out to other banks or purchase other debt products. In this manner you see a high correlation between the FED funds rate, mortgage rates, and treasury yields.    Other political factors include legislation that encourages mortgage lending (see Community Reinvestment Act) where banks may not have made the loans without said legislation. In short, keep your eye on the FED and ask yourself: ""Does the FED want rates to rise?"" and ""Can the US government afford rising rates?""  The answer to these two questions is no.  However, the FED may be pressured to ""stop the presses"" if inflation becomes unwieldy and the FED actually starts to care about food and energy prices.  So far this hasn't been the case." The price of a bond goes up when yields go down.  For example, you purchase a 5% bond today for $100 and the very next day the same bond is being offered with a rate of 10%.  Will you be able to sell you bond for the $100 you paid?  No, you must compete with the 10% bonds being sold so you will have to sell your bond for less than the $100 you paid to compete with the new bonds being sold.  Thus, bond prices are inversely related to bond yields. The 20-year index you cited tracks bond prices and bond prices have gone up over the last 10 years which means bond yields have gone down.  Why have bond prices gone up?  Demand.  More investors are moving their savings into bonds.  Why?  I believe there a couple of reasons.  One, US Treasuries are thought to be one of the safest investments.  With the financial crisis and increased stock market volatility (see chart below) more investors are allocating more of their portfolios to safer investments.  Two, a large portion of the US population is approaching retirement (see chart below).  These folks are not interested in watching their retirement portfolios potentially shrink in the stock market so they move into bonds. There's a premium or discount for various stocks subject to influence by the alternatives available to investors, meaning investments are susceptible to the principle of supply and demand. This is easily seen when industries or business models get hot, and everybody wants a tech company, a social media company, or a solar company in his portfolio.  You'll see bubbles like the dotcom bubble, the RE bubble, etc., as people start to think that the industry and not its performance are all that matters.  The stock price of a desired industry or company is inflated beyond what might otherwise be expected, to accommodate the premium that the investment can demand. So if bonds become uniformly less attractive in terms of returns, and certain institutional investors are largely obliged to continue purchasing them anyway, then flexible investors will need to look elsewhere.  As more people want to buy stocks, the price rises.  Supply and demand is sometimes so elementary it feels nearly counter-intuitive, but it applies here as elsewhere. "Beyond the yield/price relationship, a good intuitive way to understand it is just this: these people control a substantial amount of money that could be essentially loaned to governments.   If they feel a particular policy is likely to lead to inflation or default, they may decide not to loan that country any more money.  All else being equal, with a smaller supply of possible borrowers, the country will have to pay higher interest to fund a particular amount of debt. Furthermore they may loudly publicly announce that they will no longer lend to that country, in which case other participants may be persuaded that they too should no longer lend at the going rate.  What's more, this is somewhat self-fulfilling: as rates go up, the country will spend more money servicing its debt, and will in fact become a worse risk.   So I think the thing that gives them their ""vigilante"" nature is that governments worry they will round up a posse and things will run away.  As far as actual incentives, I would welcome more information but I think the main bond vigilante case is that they are basically long on the country but want it to tighten up its policy so their existing holdings don't decline." G spread - you have a 5.5 year bond, you take your yield minus the yield on the 5.5y point (interpolated) of the benchmark sovereign curve. Think of G = Government.      I Spread - same as G Spread but you use the relevant Swap Curve. E.g. USD bond, compare against the USD Swaps curve. I = interpolated.      Z Spread - stands for zero volatility curve spread. You strip the swaps curve to get zero rates (i.e. Zero coupon rates for each tenor), then find the constant spread on top of each part of the curve's zero rates to arrive at your bond's yield.      In G and I Spread, you're basically discounting the bond's cash flows using one rate (i.e. The interpolated yield on the curve). With Z Spread, you're discounting using the entire portion of the curve that's relevant to your bond's maturity. Perfect super clear, thank you /u/xlct2  So it is like you buy a bond for $X, start getting interest, sell bond for $X :)  I was thinking there could be a possibility of a bond working like a loan from a bank, that you going paying as time goes by :D