Bond Yield Calculator
Yield to maturity (YTM) is the true annualized return of a bond if held to maturity — it includes coupon income plus any capital gain or loss from the difference between purchase price and face value. This calculator shows both current yield and YTM side by side.
Enter the bond's face value, coupon rate, current market price, and years to maturity to see your full return picture.
Understanding Bond Yields: Current Yield vs. YTM
A bond's yield is not the same as its coupon rate. The coupon rate is fixed — it's printed on the bond and determines how much interest the issuer pays annually per $1,000 of face value. But the price you pay for a bond changes in the secondary market based on prevailing interest rates. The yield accounts for the price you actually paid and what you'll receive at maturity.
There are two key yield measures. Current yield is the simplest: divide the annual coupon payment by the current price. A $1,000 bond paying $50/year bought at $950 has a current yield of 5.26% ($50 ÷ $950). But current yield ignores the $50 gain you'll receive at maturity (when you get $1,000 back for your $950 purchase). Yield to maturity captures that gain too, spreading it across the remaining years to give you the bond's true annualized return.
Discount, Premium, and Par
When a bond's price equals its face value ($1,000 for most US bonds), it trades "at par" and YTM = coupon rate. When interest rates rise above the coupon rate, the bond's price falls below face value — it trades at a discount. Buying at a discount means you'll receive a capital gain at maturity (face value > purchase price), so YTM > current yield > coupon rate. When rates fall below the coupon rate, the bond trades at a premium — you paid more than face value — so you'll have a capital loss at maturity and YTM < current yield < coupon rate.
| Price Paid | Status | Current Yield | YTM |
|---|---|---|---|
| $850 | Deep discount | 5.88% | 7.00% |
| $950 | Discount | 5.26% | 5.57% |
| $1,000 | Par | 5.00% | 5.00% |
| $1,050 | Premium | 4.76% | 4.47% |
| $1,150 | Deep premium | 4.35% | 3.72% |
The Price-Yield Inverse Relationship
The most important principle in bond investing: price and yield move in opposite directions. When the Federal Reserve raises interest rates, newly issued bonds offer higher coupons. Existing bonds with lower coupons become less valuable — their prices fall to bring yields in line with the new market rate. An investor who paid $1,000 for a 3% bond when rates were 3% will see that bond's price drop to roughly $830 if rates rise to 5% on a 10-year bond. This interest rate risk is the primary reason long-term bonds are more volatile than short-term bonds.
Duration: How Sensitive Is Your Bond to Rate Changes?
Duration measures how much a bond's price changes for a 1% change in interest rates. A bond with a duration of 7 years will drop approximately 7% in price if interest rates rise by 1%. Longer-maturity bonds have higher duration. Short-term bonds (1–3 years) have low duration and are less sensitive to rate changes. This is why many investors hold a mix of short and long-term bonds in their portfolios — short-term bonds for stability, long-term for higher yields.
To understand how bonds fit into a portfolio alongside stocks, see our guide on bonds vs. stocks. For a deeper explanation of yield to maturity, including how it's calculated and when YTM matters most, read what is yield to maturity.
Frequently Asked Questions
What is yield to maturity (YTM)?
YTM is the total annualized return you'd earn if you bought a bond today at its current price and held it until maturity, collecting all coupon payments along the way. It accounts for both the coupon income and any capital gain (if bought below face value) or capital loss (if bought above face value). YTM is the most useful single metric for comparing bonds across different maturities and coupon rates.
Why is current yield different from YTM?
Current yield only measures income return (annual coupon ÷ price) and ignores the capital gain or loss at maturity. If you buy a bond below face value, you'll receive the full face value at maturity — that gain is real return but not captured in current yield. YTM adds this in, making it higher than current yield for discount bonds. For premium bonds, YTM is lower than current yield because it deducts the capital loss at maturity.
Why do bond prices fall when interest rates rise?
When new bonds issue at higher rates, existing bonds with lower coupons become less attractive. Their prices fall until their yield matches the new market rate. This inverse price-yield relationship is fundamental to how bond markets work. A 10-year bond at 3% becomes worth only about $830 when market rates rise to 5%, because at that price, the 3% coupon payments + capital gain at maturity combine to produce a 5% YTM.
What does it mean when a bond trades at a discount or premium?
A bond trades at a discount when its price is below face value (usually $1,000). This happens when market rates have risen above the coupon rate — so YTM > coupon rate. A bond trades at a premium when price exceeds face value — market rates have fallen below the coupon rate, so YTM < coupon rate. At par (price = face value), YTM = coupon rate exactly.
What payment frequency do most US bonds use?
Most US corporate and Treasury bonds pay interest semiannually — every 6 months. US Treasury bills (under 1 year) are zero-coupon instruments that don't make periodic payments. Some international bonds and Eurobonds pay annually. This calculator handles both semiannual and annual payment frequencies. When comparing yields across different payment frequencies, always use YTM, which normalizes to an annual rate.
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