How Much Do Bonds Pay: Rates, Yields, and After-Tax Returns

Bonds generally pay between roughly 3.5% and 6.5% a year, depending on who issues them, how long until they mature, and the issuer’s credit quality. In early 2026, 10-year U.S. Treasury bonds yield about 4.05%, while the broad U.S. high-yield corporate bond index pays around 6.55%.¹² But how much do bonds pay in the sense that matters, which is what lands in your account after taxes? That depends heavily on the bond type and your tax bracket, and the headline yield alone can be misleading.

How a Bond’s Payment Is Calculated

A bond has a par value, which is the amount the issuer promises to return at maturity. Most bonds are issued at $1,000 par.³ The coupon rate is a fixed percentage of par that determines your annual interest. A 5% coupon on a $1,000 bond pays $50 a year.

Most bonds split that annual payment into two installments six months apart, so a $50 annual coupon arrives as two $25 payments.³ Some pay quarterly or annually. The coupon rate is locked in at issuance, which means your dollar payments do not change even if interest rates move afterward.

What Determines the Rate a Bond Pays

Maturity Length

Longer-dated bonds usually pay more because your money is committed longer and faces more uncertainty. In early 2026, the 2-year Treasury yields about 3.45%, the 10-year about 4.05%, and the 30-year about 4.70%.⁴¹⁵ That spread of roughly 1.25 percentage points between the shortest and longest Treasury maturities is the premium for tying up money longer.

Credit Quality

Rating agencies such as Standard & Poor’s and Moody’s grade issuers on their 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 issuers must pay higher coupons to attract buyers. S&P data shows a BBB-rated company has roughly a 0.91% three-year cumulative default rate, compared to 12.41% for a B-rated company.⁶ That gap is what the extra yield compensates for.

The Federal Reserve

The federal funds rate sets the floor for borrowing costs across the economy. As of January 2026, the Fed’s target range is 3.50% to 3.75%.⁷ When the Fed raises that rate, newly issued bonds have to offer higher coupons to compete. When the Fed cuts, new bond yields fall. Your existing bond’s coupon does not change, but its resale price moves inversely with rates.

Current Yields by Type of Bond

U.S. Treasuries

Backed by the full faith and credit of the federal government, Treasuries are considered among the safest investments and pay less than most other categories as a result. In early 2026, yields run from about 3.45% on a 2-year note to 4.70% on a 30-year bond.⁴⁵ Treasury yields are the benchmark every other bond category is priced against.

Corporate Bonds

Corporate bonds pay more than Treasuries to compensate for the risk that a company could run into financial trouble. Investment-grade corporates typically pay around 1% to 2.5% more than comparable Treasuries. The broad U.S. high-yield index yielded about 6.55% in early 2026, with the lowest-rated issues paying significantly more.² The gap between corporate and Treasury yields widens during downturns and narrows when confidence is high.

Municipal Bonds

Issued by state and local governments to fund public projects, municipal bonds yield somewhere between Treasuries and corporates. High-grade short-term munis yielded about 2.4% in early 2026, while longer-dated high-grade issues can reach 4% to 5%.⁸ Those headline numbers understate the actual value because of the tax treatment covered below. General obligation bonds are backed by the issuer’s taxing authority; revenue bonds are backed only by income from a specific project.

Inflation-Protected Bonds

Treasury Inflation-Protected Securities (TIPS) adjust their principal with the Consumer Price Index. When inflation rises, the principal rises, and because the coupon is applied to that adjusted principal, your dollar payments rise too.⁹ TIPS coupon rates themselves are lower than regular Treasuries because the inflation adjustment supplies part of the return.

Series I savings bonds take a different approach. Their rate combines 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%, from a 0.90% fixed rate and a 1.56% semiannual inflation rate.¹⁰ I bonds are bought directly from the Treasury and cannot be resold.

Zero-Coupon Bonds

Zero-coupon bonds pay no periodic interest. You buy them well below par and receive the full par amount at maturity. Pay $600 today for a zero that matures at $1,000 in ten years, and the $400 spread is your total return. The IRS still requires you to report a portion of that built-in gain as taxable income each year, even though no cash has reached you.¹¹¹² That phantom income tax matters when deciding whether to hold a zero in a taxable account.

How Much You Actually Keep After Taxes

The headline yield almost never matches your take-home return. Different bond categories receive different tax treatment, and that gap can flip which bond is the better deal.

Corporate Bonds

Corporate bond interest is ordinary income for both federal and state tax purposes. For an investor in the 32% federal bracket in a state charging 5%, a 6% corporate yield shrinks to roughly 3.8% after taxes. That erosion makes high-yield corporates less compelling for higher-bracket investors than the raw number suggests.

Treasuries

Treasury interest is federally taxable but exempt from all state and local income tax.¹³ In a high-tax state, a 4% Treasury can match the after-tax income of a 4.5% corporate.

Municipal Bonds

Interest on municipal bonds is generally excluded from federal gross income under Section 103 of the Internal Revenue Code.¹⁴ If the bond was issued by your home state, the interest is often exempt from state and local tax as well, producing a “triple tax-free” result. Munis issued by other states are usually taxable at your state’s rate.

One exception matters at higher incomes: interest on certain private activity bonds, which finance projects largely benefiting private entities, can be subject to the federal alternative minimum tax.¹⁵ For 2026, the AMT exemption is $90,100 for single filers and $140,200 for married couples filing jointly.¹⁶ Above those thresholds, check whether a muni carries the AMT designation before buying.

Comparing Yields on an Even Footing

Because muni interest is often tax-free, a 3.5% muni can beat a 5% corporate bond in your pocket. To compare them, calculate the tax-equivalent yield: 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 5.15% (3.5% ÷ 0.68). Residents of high-tax states should fold in state tax too.

When the Stated Rate Isn’t What You Get

The coupon rate assumes you hold the bond to maturity. Two situations change the math.

First, selling early. Bonds trade on the secondary market, and prices move inversely with interest rates. If rates have risen since you bought, your bond sells at a discount; if rates have fallen, at a premium.¹⁷ Gains on bonds held longer than a year are taxed at long-term capital gains rates of 0%, 15%, or 20%; held a year or less, the gain is ordinary income at rates up to 37%. High-income investors may also owe the 3.8% net investment income tax. For 2026, the 0% long-term rate applies to taxable income up to $49,450 (single) or $98,900 (joint); 15% up to $545,500 or $613,700; 20% above those levels.¹⁸

Second, a callable bond can be redeemed by the issuer before maturity, usually when rates drop and refinancing makes sense for them. You get your principal back, but you lose the above-market coupon and have to reinvest at the new lower rates. Most callable bonds include a call protection period during which the issuer cannot exercise the call.¹⁹ Before buying a callable bond, look at two numbers:

Yield to maturity (YTM): your total return if you hold to maturity, assuming coupons are reinvested at the same rate.
Yield to call (YTC): your 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, and it is the most conservative estimate of what you’ll actually earn.¹⁹ On a callable bond, that is the number worth planning around.

1
Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
2
Federal Reserve Bank of St. Louis. ICE BofA US High Yield Index Effective Yield
3
FINRA. Bonds
4
Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
5
Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
6
S&P Global. Understanding Credit Ratings
7
Federal Reserve Discount Window. Federal Reserve Discount Window
8
S&P Dow Jones Indices. S&P Municipal Bond 1 Year High Grade Rate Index
9
TreasuryDirect. TIPS/CPI Data
10
TreasuryDirect. I Bonds Interest Rates
11
FINRA. The One-Minute Guide to Zero Coupon Bonds
12
Office of the Law Revision Counsel. 26 USC 1272 – Current Inclusion in Income of Original Issue Discount
13
TreasuryDirect. Tax Information for EE and I Bonds
14
Office of the Law Revision Counsel. 26 USC 103 – Interest on State and Local Bonds
15
MSRB. Municipal Bond Basics
16
IRS. Tax Inflation Adjustments for Tax Year 2026
17
SEC. Interest Rate Risk – When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall
18
IRS. Revenue Procedure 2025-32 – 2026 Adjusted Items
19
FINRA. Understanding Bond Yield and Return