Recently, I've been looking at the bond market and noticed that many people are very interested in a 7.5% yield, but most don't really understand how this number is derived. I just want to share my understanding.

First, it's important to realize that when talking about a bond paying 7.5% return, this number could refer to three different things. The coupon rate is the fixed rate promised by the issuer, which is the fixed income you receive annually while holding the bond. But if you buy bonds in the secondary market, the actual yield will differ because the price may be above or below face value. Most importantly, there's the yield to maturity, which is the total return you actually get if you hold the bond until maturity. Many market data reports mention 7.5%—this usually refers to the effective yield, calculated based on the current market price.

Where can you find around a 7.5% yield? Mainly in the high-yield bond market. These bonds are issued by entities with lower credit ratings and higher default risks, so they need to offer higher yields to compensate investors for the additional risk. In contrast, U.S. Treasuries and investment-grade corporate bonds typically have much lower yields. Some municipal bonds may have nominal yields close to 7.5%, but you need to consider tax factors and calculate the after-tax equivalent yield to make a true comparison.

If you want to achieve such returns, there are three paths. The first is buying individual bonds directly through a broker, which allows precise control over your holdings but requires researching the issuer’s creditworthiness and understanding the prospectus. The second is investing in bond funds, which give you a diversified portfolio of multiple bonds, reducing the risk associated with any single issuer, but fund prices fluctuate and management fees can eat into your returns. The third is buying bond ETFs, combining the convenience of funds with the liquidity of stock exchanges. For beginners, many prefer funds or ETFs because they don’t need to spend time researching dozens of issuers.

My personal advice is that, regardless of the route you choose, you should do your homework first. Check if the issuer’s credit rating has recently changed, and look into the historical default rates in that industry. High-yield bonds often seem very attractive because of their high yields, but there’s real default risk behind that. Many investors focus only on the yield, but when market conditions change or the issuer encounters problems, losses can happen. I’ve seen many people attracted by high yields, only to see their fund’s net asset value decline, and if they sell in a hurry, they lock in losses.

Another detail many overlook is bond liquidity. Some bonds trade very lightly, with wide bid-ask spreads, so the actual transaction price can be much worse than the quoted price. Especially for fixed-rate bonds, if interest rate environments change, trying to sell early can be very challenging.

If you really want to approach a 7.5% fixed-rate bond yield, my suggestion is to start small—use a portion of your funds to test the waters. If choosing funds, carefully review the expense ratios and holdings details, as different funds have varying fees that directly impact your net returns. If buying individual bonds, be sure to read the prospectus thoroughly, check for early redemption clauses, as these can affect your final returns. Also, keep an eye on the issuer’s latest financial statements; if profits are deteriorating or debt is increasing, be especially cautious.

Overall, a 7.5% yield can be found in the high-yield bond market, but this yield reflects real credit risk. Don’t be fooled by the numbers; the most important thing is to understand what risks you are taking on, so you can make rational investment decisions. If you’re interested in deepening your research on fixed-rate bonds or other bond products, you can check the relevant asset prices on Gate—perhaps you’ll find some ideas.