User:Cyan/kidnapped/Yield (economics)

From Wikipedia, the free encyclopedia

The yield of a financial instrument, usually a debt or other fixed income instrument, is the amount the holder is paid each year for leaving his or her money invested in that instrument. Unlike a corporate dividend, a yield is fairly certain, unless there is a bankruptcy.

While yields vary with inflation, they tend to fit in a fixed order: the least risky instruments, such as Treasury bonds, yield the least, then safe and "guaranteed" instruments like long-term deposits, then overnight deposits, and so on to the various municipal bond and corporate bonds. Extremely risky instruments with high yield are usually called junk bonds.

Economics is very concerned with yields and related money supply questions. A key issue is the contrast with ecological yield and the monetary reform which some advocate to ensure that the requirement to repay global debt does not reduce the Earth's carrying capacity or carbon sink capacity. If the payments of economic yield to holders of global debt exceed that which can be borne by the natural renewal of the Earth, it's current solar income for instance, that is an energy subsidy which typically comes from fossil fuel and other non-renewable resource. Full cost accounting for these vs renewable resources may put hard limits on the amount of total yield that can be guaranteed to holders of debt instruments.

In practice, this is an issue with money supply and monetary policy and does not affect each individual holder of a bond or other debt, except insofar as it may lead from time to time to odious debt writeoffs or a major credit crisis. These are suprisingly common in a business cycle anyway.

Also, there are so many restrictions on who can issue debt instruments in a bond market, that the most egregious horrors (issuing junk bonds with a promise to tear down a rainforest to pay them back) do not happen in a developed nation. They are however sadly still quite common in Brazil and other emerging markets.