Bonds & rates
Yield to maturity
Also called YTM or Redemption yield
The total annual return from holding a bond to maturity, counting coupons and any price gain or loss.
How it works
YTM is the discount rate that makes the present value of all a bond’s remaining payments equal its current price. It is the standard measure for comparing bonds.
It assumes you hold to maturity, the issuer pays everything, and every coupon is reinvested at the same yield. The last assumption is rarely true.
Where it misleads people
A high YTM is often compensation for high default risk rather than a bargain. On distressed debt, the quoted yield is a number nobody expects to receive.
Worked example
A bond bought at 95 with a 4% coupon and five years to run yields more than 4%, because you also collect the 5-point gain to par.
Related terms
- CouponThe fixed interest a bond pays each year, expressed as a percentage of its face value.
- Current yieldA bond’s annual coupon divided by its current market price.
- Credit riskThe risk that a borrower fails to make the payments it promised.
- Yield curveA chart of government bond yields across maturities, from months to decades.
- DurationHow much a bond’s price moves when interest rates change, expressed in years.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.