Yield to maturity, current yield and total return — priced from any bond quote
| If held to maturity | Amount |
|---|
A bond quote hides three different "yields," and buying on the wrong one costs real money. The coupon is history — what the issuer promised at issue. The current yield is income ÷ today's price. The one that matters is yield to maturity: the total annualized return from buying at today's price, collecting every coupon, and redeeming at face — the number that makes bonds comparable to each other and to everything else. This calculator solves it properly (iteratively, the way pricing systems do) from any quote.
| Yield | Formula | Example ($950 price, 4% coupon, 8 yrs) |
|---|---|---|
| Coupon rate | Annual coupon ÷ face | 4.00% — fixed forever |
| Current yield | Annual coupon ÷ price | 4.21% |
| Yield to maturity | IRR of all cash flows | 4.77% — includes the $50 pull to par |
Bond prices and rates move inversely because old coupons must compete with new ones. When market rates rise above a bond's coupon, its price falls below face (a discount) until its YTM matches the market; when rates fall, the price rises to a premium. Neither is a bargain nor a ripoff — the YTM equalizes them by construction. The practical corollaries:
An individual bond held to maturity returns exactly its YTM; a bond fund holds a rolling ladder — same math on average, but no fixed maturity date, so its value floats with rates indefinitely. Rule of thumb: match individual bonds/ladders (or target-maturity ETFs) to dated liabilities; use funds for permanent allocations. Either way, compare everything on YTM (funds publish it as "SEC yield") — and see the CD Calculator for the bank-insured alternative at short maturities.
Rates moved since issue: rates up → price down (discount), rates down → price up (premium). The price adjusts until the bond's YTM matches what the market pays for equivalent risk and maturity today.
YTM, always — it's the only one incorporating price, coupons AND redemption. For callable bonds, yield-to-worst (the lowest of YTM and yields to each call date). Current yield alone systematically flatters premium bonds.
You get the market price that day — which realizes the rate seesaw as a gain or loss. The YTM 'lock' applies only to holding to maturity; a rate rise of 1% costs roughly its duration in price (an 8-year duration bond drops ~8%).
Coupons: ordinary income federally (Treasury coupons are state-tax-exempt; muni coupons federal-tax-exempt and often state too). Market-discount gains have their own rules. Bonds are the classic candidate for tax-sheltered accounts — except munis, which belong outside them.
It's payment for something — longer maturity (rate risk), lower credit (default risk), or callability. Compare YTMs only within the same risk bucket; across buckets, the spread IS the risk pricing.
SEC yield is essentially the fund's average YTM (after expenses) computed over the trailing 30 days — the right number for comparing funds to individual bonds and to each other.
Yes — every figure computes locally in your browser.
Read every bond quote through its YTM and the premium/discount logic becomes intuition instead of mystery. Ladder to your dates, respect call features, and let the coupon seesaw work for you rather than on you.