Yield to Maturity (YTM)

Bonds & Fixed Income
Updated Apr 2026 • Has calculator

The total annualised return an investor earns by holding a bond to maturity, accounting for price, coupons, and par repayment.

What is Yield to Maturity?

Yield to maturity is the internal rate of return of a bond held to maturity, assuming all coupon payments are reinvested at the same rate. It is the single discount rate that equates the present value of all future cash flows (coupons plus par repayment) to the bond's current market price. YTM is the most comprehensive yield measure for comparing bonds because it incorporates both income and any capital gain or loss. When a bond trades below par, YTM exceeds the coupon rate; when it trades above par, YTM falls below the coupon rate. YTM has no closed-form solution and is computed iteratively.

Formula

Price = Σ [Coupon / (1 + YTM/freq)ᵗ] + FaceValue / (1 + YTM/freq)ⁿ

Worked Example

Worked example — US Treasury 4.625% Note due Oct 2026

Secondary market, October 2024

Step 1  Face value: $1,000 | Annual coupon: $46.25 (semi-annual: $23.125)
Step 2  Current price: $993.75 | Remaining maturity: 2 years | Freq: 2
Step 3  Solve for r: $993.75 = Σ $23.125/(1+r)^t + $1000/(1+r)^4
Step 4  YTM ≈ 4.95% (annualised)
Step 5  → Bond trades at a slight discount so YTM > coupon rate of 4.625%

Source: US Department of the Treasury — Daily Yield Curve Rates (2024-10-01)

Calculate Yield to Maturity

Current clean market price of the bond

Total annual coupon payment in dollars

Par value repaid at maturity

Time in years from today to maturity

1 = annual, 2 = semi-annual, 4 = quarterly

Yield to Maturity

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Not investment advice.

How to Interpret Yield to Maturity

< 3
< 3%: Low yield — short-duration or high-quality government bonds
3 – 6
3–6%: Moderate — typical investment-grade corporate or agency bonds
6 – 9
6–9%: High yield — below-investment-grade or distressed bonds
> 9
> 9%: Very high — high-yield or speculative-grade territory

📚 Bond Basics — Complete the path

  1. Bond Price
  2. Coupon Payment
  3. Yield to Maturity
  4. Yield to Call
  5. Bond Equivalent Yield
Sources
  1. CFA Institute — Fixed Income Analysis, 3rd ed., Ch. 3
  2. US Department of the Treasury — Daily Yield Curve Rates
  3. Investopedia — Yield to Maturity (YTM)