Yield to Maturity
The total annualized return an investor earns if they hold a bond to maturity — accounting for coupon payments, price paid, and time remaining.
Formula
Price = Σ [C / (1+YTM)^t] + Face Value / (1+YTM)^n (solve for YTM)
Yield to Maturity (YTM) is the most complete measure of a bond's return. It is the single discount rate that equates the present value of all future cash flows (coupons + face value) to the current market price.
YTM assumes: (1) the investor holds the bond to maturity, (2) all coupon payments are reinvested at the same YTM rate. In practice, reinvestment rates vary — but YTM is still the standard measure for comparing bonds with different coupons, maturities, and prices.
When traders say a 10-year Treasury "yields 4.50%", they mean YTM is 4.50%. The entire yield curve is plotted using YTM.
Related Terms
Accrued Interest
The coupon interest earned on a bond since the last payment date, owed by the buyer to the seller when a bond is purchased between coupon dates.
IntermediateBond
A debt instrument in which the issuer borrows money from the buyer and promises to pay periodic interest plus return the principal at maturity.
BeginnerBond Yield
The return an investor earns by holding a bond — driven by its price, coupon, and time to maturity. Moves inversely with price.
BeginnerCallable Bond
A bond the issuer can redeem early at a set call price, usually after rates fall — capping the holder's upside and adding reinvestment risk.
IntermediateCoupon
The fixed annual interest payment made by a bond issuer to the bondholder, expressed as a percentage of face value.
BeginnerCurrent Yield
A bond's annual coupon payment divided by its current market price — a simple but incomplete measure of yield that ignores capital gain or loss.
IntermediateDuration
A measure of a bond's sensitivity to interest rate changes — the approximate percentage price change for a 1% move in yield.
AdvancedMaturity
The date on which a bond's principal must be fully repaid to the bondholder, ending the life of the debt instrument.
BeginnerNominal Yield
A bond's stated yield without adjusting for inflation — the face-value return before accounting for the erosion of purchasing power.
IntermediatePrice-Yield Inverse Relationship
The fundamental bond market law: when yields rise, bond prices fall; when yields fall, bond prices rise — always and mechanically.
BeginnerYield to Worst (YTW)
The lowest yield a bond can deliver across all its possible redemption scenarios — the conservative return assumption for callable bonds.
IntermediateZero-Coupon Bond
A bond that pays no periodic coupon, sold at a discount to face value; the entire return is the gap between purchase price and par at maturity.
Intermediate