Definition
Yield to Maturity (YTM)
Yield to maturity is the total annualised return an investor would earn on a bond if held to maturity, accounting for its price, coupons and the gain or loss to face value.
YTM is the single discount rate that makes the present value of a bond's future coupons and principal equal to its current market price. It expresses the effective annual return assuming you hold the bond until it matures and reinvest coupons at the same rate.
When a bond trades below face value, its YTM is higher than its coupon rate; when it trades above par, YTM is lower than the coupon. YTM lets investors compare bonds with different prices, coupons and maturities on a common basis.
It is a key metric on bond platforms. Note that YTM assumptions (holding to maturity, reinvestment) may not hold in practice, and credit risk can affect realised returns.
Related terms
- Bond Investing PlatformsBond investing platforms are SEBI-regulated online avenues, including Online Bond Platform Providers, that let retail investors buy listed corporate and government bonds in small lots.
- NCD Public IssueA Non-Convertible Debenture public issue is a company's offer of debt securities to the public that pay fixed interest and return principal at maturity, without converting into shares.
- Online Bond Platform Provider (OBPP)An Online Bond Platform Provider is a SEBI-registered entity that offers listed debt securities to retail investors through an online platform under a dedicated regulatory framework.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.