Yield to Worst (YTW)
The lowest yield a bond can deliver across all its possible redemption scenarios — the conservative return assumption for callable bonds.
Formula
YTW = min(Yield to Maturity, Yield to Call for each call date)
Yield to Worst (YTW) is the lowest potential yield a bondholder can receive without the issuer defaulting. For a bond with embedded options — most commonly a call provision — YTW is the minimum of the yield-to-maturity and every possible yield-to-call. It answers the question: in the scenario least favorable to me, what return do I actually earn?
YTW matters because issuers exercise calls precisely when it hurts the holder — after rates fall. Quoting a callable bond at its rosy yield-to-maturity overstates the return an investor is likely to realize, since the bond will probably be called away first. YTW strips out that optimism.
The practical rule: for a callable bond trading at a premium, YTW is usually the yield-to-the-nearest-call; for one trading at a discount, YTW is often the yield-to-maturity. Professional desks and trade tickets quote YTW by default on any callable or putable bond.
Related Terms
Bond 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.
IntermediateCorporate Bond
Debt issued by a company to raise capital, paying a coupon above Treasuries to compensate investors for credit risk.
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.
IntermediateYield 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.
Intermediate