Fixed income

Yield to maturity (YTM)

Yield to maturity (YTM) is the total return an investor can expect to earn if a bond is held until its maturity date, assuming all interest payments are reinvested at the same rate. YTM considers the bond’s current price, face value, coupon rate, and time to maturity, providing a comprehensive measure of its potential profitability.

Variations of Yield to maturity (YTM)

Yield to maturity has specific variations to address bonds with embedded options:

  • Yield to call (YTC): Assumes the bond will be called (repurchased by the issuer) before maturity, resulting in a shorter cash flow period. YTC is calculated under the assumption that the bond will be called at the earliest feasible date.

  • Yield to put (YTP): Applies to put bonds, where the holder can sell the bond back to the issuer at a set price. YTP is calculated assuming the bond will be put back at the earliest financially feasible opportunity.

  • Yield to worst (YTW): Used when a bond has multiple options, such as both call and put provisions. YTW represents the lowest possible yield based on the most disadvantageous terms for the investor.

See also

Coupon rate
Subordinated bonds
Interest rate risk

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