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Running yield

Another name for current yield, used mainly in UK and European bond markets: annual income divided by the price you paid.

Running yield and current-yield are the same calculation. The term shows up in gilt and European credit desks, and in property and loan markets where the point is the cash you collect per year rather than the total return.

Traders who fund positions care about running yield because it feeds directly into carry-fixed-income. If the bond runs at 5% and your repo funding costs 4.4%, you earn 0.6% a year for simply holding it.

Example: you buy 1,000,000 face of a 4.5% gilt at 92. You pay 920,000, collect 45,000 a year, so the running yield is 4.89%.

Related: current-yield, carry-fixed-income, coupon

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Contango and backwardationTwo futures curves against contract expiry: one rising above spot, one falling below it.The same commodity, priced for delivery at different dates.78.0076.0074.0072.0070.00Futures pricespot+1m+2m+3m+4m+5m+6mMonths until the contract expiresspot price74.00CONTANGOlater contracts cost more than spotBACKWARDATIONlater contracts cost less than spot
Contango and backwardation. A futures curve shows what buyers will pay for delivery in one month, two months and so on. When later contracts cost more than the spot price the curve is in contango; when they cost less it is in backwardation.

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