Yield to Maturity

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The total annualized return if you hold a bond to maturity — assuming you reinvest at YTM.

Quick Answer

What is Yield to Maturity?

Yield to Maturity (YTM) is the total annualized return expected if a bond is held to maturity, given current price, coupon, face value, and time remaining. Mathematically, YTM is the IRR of the bond's full cash flow stream from purchase to redemption. The canonical yield measure for bonds.

Price = Σ Couponᵢ/(1+YTM)^tᵢ + Face/(1+YTM)^N

Formula

Price = Σi=1..N Couponi/(1+YTM)ti + Face/(1+YTM)N
Couponi = each coupon payment · Face = face value returned at maturity · N = years to maturity · Solved iteratively.

YTM is the discount rate that makes the present value of all the bond's future cash flows equal its current price. Solved with Newton-Raphson — same machinery as XIRR.

Intuition — what is this number telling you?

YTM is the canonical yield measure for bonds. It assumes the investor holds to maturity and reinvests coupons at the YTM rate — both rarely fully true in practice. For floating-rate or callable bonds, yield-to-worst (YTW) is more conservative and more honest.

Worked example

Step-by-step

A 5-year Treasury with a 4% coupon currently trading at par ($100). Annual coupons of $4, face value $100 at maturity.

Price = 100 = 4/(1+y) + 4/(1+y)² + 4/(1+y)³ + 4/(1+y)⁴ + 104/(1+y)⁵

Solving: YTM = 4.0%

At par, YTM equals the coupon rate. Below par, YTM > coupon. Above par, YTM < coupon.

What's a good Yield to Maturity value?

Recent (2024–2025) US Treasury YTMs: 3-month T-bill ~4.3%, 2-year ~4.2%, 10-year ~4.5%, 30-year ~4.7%. Corporate bond YTMs add credit spread on top.

Related metrics

Risk-Free Rate  ·  Real Return

Frequently asked questions about Yield to Maturity

Is YTM the actual return I will earn?

Only if you hold to maturity AND reinvest each coupon at the YTM rate. In practice, coupons get reinvested at whatever the prevailing rate is at the time of payment, so realized return may differ.

What is "yield-to-worst"?

For callable bonds, YTW is the minimum of YTM and yield-to-call across all call dates. The most conservative estimate of return.

How does YTM relate to TIPS?

TIPS have a real YTM (above inflation). Combined with breakeven inflation expectations from nominal Treasuries, you can derive market-implied inflation forecasts.

Does Foliolytic compute YTM?

For bond holdings — yes, when price and coupon data are available.

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