• Yield to Maturity (YTM)

    The Yield to maturity (YTM) of a bond denotes the internal rate of return the bond provides to the investor if the investor holds the bond until maturity and all the coupon payments and principal payment at the end are paid properly as per the schedule. Yield to maturity varies with the current market interest rate and the current market value is affected by the change in the yield to maturity value.

    The current yield refers to the yield rate at the current moment of time which helps to calculate the market price of the bond for trading purpose. It does not specify the total return of the bond for the whole tenure.

    If the current yield is less than the yield to maturity then it means the bond will give lower return as per the current estimate. So the price will decrease or will be available in the market at discount.

    If the current yield is more than the yield to maturity then it means the bond will give higher return as per the current estimate. So the price will increase or will be available in the market at premium.

    If the current yield is same as the yield to maturity then it means the bond will give the same return as what was calculated at the time of issue in future as per the current estimate. So the price will be same.

    The relationship will be as below

    • Current Yield < Yield to Maturity => Discounted price
    • Current Yield > Yield to Maturity => Premium price
    • Current Yield = Yield to Maturity => No Change
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