YTM
Your total annualized return if you hold the bond to maturity. Accounts for coupon payments, the purchase price, and the face value at maturity. Assumes all coupon payments are reinvested at the same rate \u2014 an assumption rarely met in practice.
Why it matters
YTM is the standard measure for comparing bonds, but the reinvestment assumption is rarely met in practice. When rates change, actual returns will differ from YTM. For callable bonds, Yield to Worst (YTW) \u2014 the lower of YTM and Yield to Call \u2014 is more relevant.
How to read it
Compare YTM across similar credit quality and maturity. A higher YTM means more compensation but also more risk. For callable bonds, always check YTW \u2014 if the bond is likely to be called, YTM overstates your expected return.
Lessons that use this term
Related terms
10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods
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