Yield to Maturity (YTM)

YTM is the single most important yield number in bond markets, and it's what most data tables — including those on our bonds page — display when they show a "yield." Unlike the coupon rate, which is fixed at issuance, YTM accounts for everything: the coupon payments, the gap between today's purchase price and the face value repaid at maturity, and how long until maturity. It blends all of that into one comparable annual percentage.

A concrete hypothetical: suppose a bond has a face value of $1,000, pays a $40 annual coupon, matures in five years, and currently trades at $950. A buyer pays $950 but will receive $1,000 back — a $50 gain over five years — on top of $40 per year in coupons. YTM folds that price discount into the return calculation, producing a yield higher than the raw 4% coupon rate. If the same bond traded above par at $1,050, the YTM would be lower than 4%, because the buyer is effectively paying extra to receive the same payments.

The reason YTM is so useful is comparability. A 6% coupon bond trading at a steep discount and a 3% coupon bond trading near par can be directly compared by their YTMs, even though their coupon structures look nothing alike. Economists and portfolio managers use YTM as the standard ruler. For the mechanics of why price and return move inversely, see bond yield.

One important caveat: YTM assumes all coupon payments are reinvested at the same rate — an assumption that is convenient for calculation but rarely matches reality. Think of YTM as a standardized benchmark, not a guaranteed outcome.