Bond Yield Basics: Current Yield vs Yield to Maturity
Translate coupon, price, and maturity into yields investors actually quote—without mixing up annual cash flow with capital gain.
Bond Yield Basics: Current Yield vs Yield to Maturity
Updated May 2026 · ~8 min read
Bond return measures depend on promised cash flows, price convention, settlement date, coupon frequency, accrued interest, call or put features, credit events, taxes, currency, and reinvestment. Current yield is a limited income ratio; yield to maturity is an internal rate under contractual and reinvestment assumptions, not a guaranteed realized return.
When each yield matters
- Income today: current yield relates annual coupon cash to the price you pay—good for comparing cash yield on similar credits.
- Hold to maturity: YTM bundles coupon reinvestment assumptions and pull-to-par as the bond approaches face value.
- Price sensitivity: when rates move, long duration bonds swing more; yields explain why quotes change.
The formula
Current yield = annual coupon ÷ clean price YTM solves the present value of contractual cash flows to the settlement dirty price
Approximate YTM formulas can be materially inaccurate. Callable, putable, floating-rate, inflation-linked, defaulted, amortizing, and convertible bonds require instrument-specific cash flows and conventions.
Price convention and yield interpretation
A discount bond can have YTM above current yield because maturity value contributes to the modeled return. Realized return can differ because of default, sale timing, reinvestment rates, taxes, and calls.
Common mistakes
- Calling coupon rate, current yield, and YTM interchangeable.
- Ignoring accrued interest and settlement conventions.
- Using an approximate YTM as though it were exact.
- Ignoring calls, puts, defaults, currency, taxes, and reinvestment.
- Treating YTM as a guaranteed realized return.
Try the calculator
Use the interactive calculator to plug in your numbers and see results instantly—without redoing the math by hand.
Open bond yield calculator →FAQ
Is YTM guaranteed?
No. It assumes contractual payments, holding to maturity, and a reinvestment framework; default, sale, calls, taxes, and rates can change realized return.
Why do clean and dirty prices differ?
Dirty price includes accrued interest; settlement value and yield calculations use instrument conventions.
What is yield to call?
It models cash flows to a possible call date and price, not a certainty that the bond will be called.
Does current yield include price gain or loss?
No. It only compares annual coupon with price.
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Educational Disclaimer
This article is for educational and informational purposes only and should not be considered investment, financial, tax, or legal advice. Market information may change over time, and readers should verify important details independently before making financial decisions.