Yield to call

The return implied if a callable bond is repaid at its first call date and call price rather than held to maturity. Quoting the lower of yield to call and yield to maturity is described as the yield to worst.

Example

A 6% bond priced at 1,080, maturing in eight years but callable in three at 1,020, yields 4.7735% to maturity and 3.7718% to call.

Important

Underwrite on the yield to worst, not the higher figure. Averaging the two outcomes is not a risk adjustment, because which one happens is chosen by your counterparty rather than by chance.

Related terms

• Callable bond — A bond the issuer may repay before maturity, on stated dates and at a stated price. The option belongs to the issuer, and the coupon is higher than it would otherwise be as payment for it.
• Yield to maturity — The single discount rate at which the present value of a bond's remaining cash flows equals its current price. It has no closed-form solution for a multi-period bond and is found numerically.
• Current yield — The annual coupon divided by the current price. It measures the income received against what the bond costs today, and nothing else.

Lessons that explain it

• Appraising one bond: three yields that disagree, and what the rating leaves out — A single bond has a coupon rate, a current yield and a yield to maturity, and they are three different numbers. The gap between the last of them and a government bond is the market's own estimate of what could go wrong. (13 min)

All 578 terms in the Investing glossary