Series 50: Yield To Call

Yield to Call

Bonds are often called when interest rates have declined and the issuer can issue a new set of bonds at a lower interest rate. Yield to call (YTC) is the yield assuming that you hold the security only until its first or next call date. It is calculated in the same way as yield to maturity, except that you plug in a shorter time to maturity.

Yield to call is often higher than yield to maturity for a discount bond and lower for a premium bond. This is because capital gains and losses are discounted over a shorter period of time. Money has more value the sooner it is in your pocket.

For bonds held to maturity, the following relationships hold. They can also be represented in the bond seesaw below. The bond seesaw can help you to remember the relationships among these