Most bonds pay somewhere between about 3.5% and 6.5% a year, with the exact figure driven by the type of bond, the issuer’s credit quality, and how long until it matures. In early 2026, 10-year U.S. Treasury bonds yield about 4.05%, while the broad U.S. high-yield corporate index pays around 6.55%.1Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity2Federal Reserve Bank of St. Louis. ICE BofA US High Yield Index Effective Yield Headline yields tell only part of the story, though. What you keep after taxes depends on the bond category and your bracket, and the total return can shift if you sell before maturity or the issuer calls the bond early.
How the Payment Actually Works
Every bond has a par value, which is the face amount the issuer promises to repay at maturity. Most bonds are issued at $1,000 par.3FINRA. Bonds The coupon rate is a fixed percentage applied to that par value to calculate your annual interest. A 5% coupon on a $1,000 par bond pays $50 a year.
Most bonds pay that interest twice a year, so the $50 arrives as two $25 payments six months apart.3FINRA. Bonds Some pay quarterly or annually. The coupon rate is set at issuance and does not change, so your payments stay the same regardless of what happens to market rates afterward.
What Each Type of Bond Pays
Treasury Securities
U.S. Treasuries are backed by the full faith and credit of the federal government, and their yields sit at the low end of the range as a result. In early 2026, the 2-year Treasury yields about 3.45%, the 10-year about 4.05%, and the 30-year about 4.70%.4Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity1Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity5Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity These yields serve as the benchmark for pricing every other bond category.
Corporate Bonds
Corporate bonds pay more than Treasuries to compensate for the risk that a company runs into trouble. Investment-grade corporates (rated BBB- or higher) typically offer about 1% to 2.5% above comparable Treasuries. High-yield corporates carry more risk and pay accordingly; the broad U.S. high-yield index yielded roughly 6.55% in early 2026, and the lowest-rated issues within it pay well above that.2Federal Reserve Bank of St. Louis. ICE BofA US High Yield Index Effective Yield The gap between corporate and Treasury yields widens during downturns and narrows when business conditions are strong.
Municipal Bonds
Municipal bonds fund state and local projects like schools, highways, and water systems, and their headline yields usually fall between Treasuries and corporates. High-grade short-term munis yielded around 2.4% in early 2026, and longer-term high-grade issues can reach 4% to 5%.6S&P Dow Jones Indices. S&P Municipal Bond 1 Year High Grade Rate Index The exact yield depends on the issuer’s finances and on whether the bond is a general obligation (backed by taxing authority) or a revenue bond (backed by a specific project’s income). The lower headline number can be misleading because municipal interest carries major tax advantages, covered further down.
Inflation-Protected Bonds
Treasury Inflation-Protected Securities (TIPS) adjust their principal with the Consumer Price Index. When inflation rises, the principal goes up, and because interest is calculated on that adjusted principal, your coupon payments rise too.7TreasuryDirect. TIPS/CPI Data If deflation occurs, principal falls, though you receive at least the original par at maturity. TIPS coupon rates are lower than standard Treasuries because part of your return comes from the inflation adjustment itself.
Series I savings bonds combine a fixed rate set at purchase with a variable inflation rate that resets every six months. For I bonds issued from November 2025 through April 2026, the composite rate is 4.03%, built from a 0.90% fixed rate and a 1.56% semiannual inflation rate.8TreasuryDirect. I Bonds Interest Rates I bonds are purchased directly from the Treasury and cannot be traded on the secondary market.
Zero-Coupon Bonds
Zero-coupon bonds pay no periodic interest at all. You buy them at a deep discount to par and receive the full face amount at maturity. Pay $600 today for a $1,000 zero maturing in ten years, and the $400 difference is your total interest. Even though no cash arrives until maturity, the IRS requires you to report a portion of that gain as imputed interest each year.9FINRA. The One-Minute Guide to Zero Coupon Bonds10Office of the Law Revision Counsel. 26 USC 1272 – Current Inclusion in Income of Original Issue Discount That “phantom income” tax bill is worth planning for, since you owe on money you have not yet received.
Why Two Bonds Pay Different Rates
Maturity Length
Longer bonds usually pay more because you tie up money longer and face more uncertainty. The roughly 1.25-percentage-point spread between the 2-year and 30-year Treasury reflects that premium.
Credit Rating
Standard & Poor’s and Moody’s rate issuers on ability to repay. Bonds rated BBB- or higher by S&P (Baa3 by Moody’s) are investment-grade; anything below is speculative, or “junk.” Weaker credits must pay more to compensate for default risk. Historical data shows a BBB-rated company has roughly a 0.91% three-year cumulative default rate, compared with 12.41% for a B-rated one.11S&P Global. Understanding Credit Ratings A rating change after you buy does not alter your coupon, but it moves the bond’s market price.
The Federal Reserve
The federal funds rate sets a floor for borrowing costs across the economy. As of January 2026, the Fed maintains a target range of 3.50% to 3.75%.12Federal Reserve Discount Window. Federal Reserve Discount Window When the Fed raises rates, newly issued bonds must offer higher coupons to compete; when it cuts, new-bond yields fall. Existing fixed-coupon bonds keep paying the same, but their prices adjust.
What You Actually Keep After Taxes
The headline yield can mislead because federal and state taxes reduce it, and different bond categories are taxed very differently.
Corporate Bond Interest
Corporate interest is taxed as ordinary income at both the federal and state level. In the 32% federal bracket with a 5% state tax, a 6% corporate yield falls to roughly 3.8% after taxes. That squeeze hits high earners hardest.
Treasury Interest
Treasury interest is taxable federally but exempt from state and local income taxes.13TreasuryDirect. Tax Information for EE and I Bonds That exemption gives Treasuries a real edge in high-tax states. A 4% Treasury can deliver the same after-tax income as a 4.5% corporate bond once state taxes are factored in.
Municipal Interest
Interest on municipal bonds is generally excluded from federal gross income under Section 103 of the Internal Revenue Code.14Office of the Law Revision Counsel. 26 USC 103 – Interest on State and Local Bonds If the bond was issued by your own state, the interest is often exempt from state and local tax too. Buy a bond issued by a different state, and most states tax that interest at your regular rate.
One catch: certain private activity bonds, which finance projects mainly benefiting private entities, can trigger the federal alternative minimum tax.15MSRB. Municipal Bond Basics If AMT could apply to you, confirm whether a muni is AMT-designated before buying.16IRS. Tax Inflation Adjustments for Tax Year 2026
Comparing Yields Fairly
Because muni interest is often tax-free, a muni yielding 3.5% can put more in your pocket than a corporate bond yielding 5%. To compare them directly, divide the muni yield by one minus your marginal tax rate. In the 32% federal bracket, a 3.5% muni is equivalent to a taxable yield of roughly 5.15% (3.5% รท 0.68). For residents of high-tax states, add state taxes into the calculation.
If You Sell Before Maturity
You do not have to hold a bond to maturity. Bonds trade on the secondary market, and price is quoted as a percentage of par: a bond quoted at 105 sells for $1,050 (a premium); one at 95 sells for $950 (a discount).17MSRB. How Are Municipal Bonds Priced
Interest-rate moves drive most of the price action. When rates rise, older bonds with lower coupons look worse, and prices fall. When rates drop, older bonds with higher coupons become more valuable, and prices rise.18SEC. Interest Rate Risk – When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall Selling early can produce a gain or a loss.
A profit on sale is a capital gain. Held longer than a year, it qualifies for long-term rates of 0%, 15%, or 20% depending on income. For 2026, the 0% rate covers taxable income up to $49,450 (single) or $98,900 (joint); the 15% rate runs up to $545,500 (single) or $613,700 (joint); above those, it’s 20%.19IRS. Revenue Procedure 2025-32 – 2026 Adjusted Items Bonds sold inside a year are taxed at ordinary income rates up to 37%, and high-income investors may owe an additional 3.8% net investment income tax.
Callable Bonds and Yield to Worst
Some bonds include a call provision that lets the issuer repay principal early, typically after rates have fallen. If you own a bond paying 6% and rates drop to 4%, the issuer has every reason to call and reissue at the lower rate. You get your principal back but lose the above-market income and must reinvest at whatever rates now prevail.
Most callable bonds include a call protection period during which the issuer cannot call. Many offer at least a few years of guaranteed income before the call becomes possible.20FINRA. Understanding Bond Yield and Return Two yield figures matter here:
- Yield to maturity (YTM) is the total return if you hold to maturity, assuming coupons reinvest at the same rate.
- Yield to call (YTC) is the total return if the issuer calls at the earliest possible date, using the call date and call price instead of maturity and par.
The lower of the two is the yield to worst, the most conservative estimate of what you will actually earn.20FINRA. Understanding Bond Yield and Return Check yield to worst before buying a callable bond; the headline YTM can overstate what you keep if the bond gets called.
When the Payment Doesn’t Come
A default happens when the issuer misses an interest payment or fails to repay principal. In a corporate default, bondholders become creditors in bankruptcy, ranking ahead of stockholders but behind secured lenders. Investors in defaulted unsecured corporate debt have historically recovered between roughly 40% and 60% of par on average, though individual outcomes vary widely.
Treasuries carry virtually no default risk because the federal government can raise taxes or issue new debt to meet obligations. Municipal defaults occur occasionally, most often on revenue bonds tied to projects that fail to generate enough income, but overall municipal default rates are far lower than corporate ones. If you hold bonds rated below investment grade, the extra yield you earn is compensation for exactly this risk, so spreading holdings across multiple issuers limits the damage from any single failure.