japanja
Credit investing glossary

Yield to maturity

Expressed simply, the yield to maturity (YTM) of a bond is the annualized return that a bond investor would receive from holding the bond until maturity. It is also referred to as the redemption yield or the book yield.

More technically, it is the internal rate of return required for the present value of all future cash flows from the bond – its coupon payments and the principal – to equal the prevailing market price of the bond. 

The calculation of the YTM is an iterative process, in which a range of rates are substituted into the formula. The YTM is determined once the calculated price (the present value of future cash flows) equals the current market price.

The YTM can be used to evaluate the current valuation of a bond by comparing it with its coupon rate, where the latter is a simpler calculation of the annual coupon payments divided by the face value of the bond. 

Consistently at the forefront of credit management
Consistently at the forefront of credit management
Credit investing

If the YTM is higher than the coupon rate, the bond is trading at a discount. If the YTM is below the coupon rate, the bond is trading at a premium. 

Furthermore, as the YTM is calculated as an annualized rate, it can be used to compare the relative attractiveness of bonds with different coupons and maturities.

Podcast: Challenge the consensus
Podcast: Challenge the consensus
Keep questioning the consensus in 2021, do your research and stay contrarian, says Victor Verberk, Robeco’s CIO Fixed Income in our latest podcast episode.
14-01-2021 | ポッドキャスト
クレジット・アウトルック: TINA(他に選択肢はない)が支配する環境
クレジット・アウトルック: TINA(他に選択肢はない)が支配する環境
市場価格には最高のシナリオが織り込まれていますが、ネガティブ・サプライズが重なれば、市場環境はさらに弱気になるでしょう。
29-12-2020 | インサイト
債券アウトルック:レンジ相場の再来
債券アウトルック:レンジ相場の再来
市場参加者には、短期的な要因や経済的な要因に過度に注目する傾向がみられますが、幅広い視点で将来を見据える必要があるのかもしれません。
28-12-2020 | インサイト