Quick answer
Yield to maturity (YTM) is the annual return on a bond if you hold it until it matures, taking into account the price you paid and when you bought it [1]. It differs from the coupon rate whenever the price differs from face value.
#How is yield to maturity different from the coupon rate?
The coupon rate is the yearly interest rate set when a bond is issued, and it does not change over the bond's life [2]. Yield to maturity starts from the price you actually pay. FINRA describes YTM as the overall interest rate earned by an investor who buys a bond at the market price and holds it until maturity [2]. If you pay less than face value, you also gain the difference at maturity; if you pay more, you lose it.
Worked example
Same coupon, three prices
Three bonds each have a $1,000 face value, a 4.00% coupon ($40 a year) and 10 years to maturity. Only the price differs. YTM is solved in code with annual payments.
- Bond A at $1,000 (par)
- YTM 4.00% · current yield 4.00%
- Bond B at $900 (discount)
- YTM 5.31% · current yield 4.44%
- Bond C at $1,100 (premium)
- YTM 2.84% · current yield 3.64%
A lower purchase price means a higher yield to maturity, and a higher price means a lower one. These YTM figures match the SEC's own comparison of the same three bonds.
Current yield is the $40 coupon divided by the price. Figures ignore taxes and trading costs.
| Measure | What it uses | Changes with price? |
|---|---|---|
| Coupon rate | Yearly interest set at issue ÷ face value | No |
| Current yield | Yearly coupon ÷ current market price | Yes |
| Yield to maturity | Price, coupons, face value and time left | Yes |
#What does yield to maturity assume?
YTM is a calculation, not a promise. FINRA explains that it assumes the bond is held to maturity and coupon and principal payments are made on time, that YTM computations generally assume coupons are reinvested, and that it does not consider taxes or brokerage costs [2]. FINRA adds that because rates fluctuate, reinvesting every coupon at the same rate is virtually impossible [2]. If the issuer defaults, or you sell early at a different price, your actual return will differ. For bonds that can be called early, FINRA notes that yield to call and yield to worst may also be quoted [2].
#Why does yield to maturity rise when bond prices fall?
The coupon payments are fixed, so the only way a bond's yield can adjust to new market rates is through its price. Investor.gov describes bond prices and market interest rates moving in opposite directions, like the ends of a seesaw [1]. Our guide to bond prices and interest rates explains this in more detail.
Related terms
Frequently asked questions
Is yield to maturity the return I will get?
Only if every assumption holds: you keep the bond to maturity, the issuer pays in full and on time, and coupons are reinvested at the same rate. Real results often differ.
Why is YTM used to compare bonds?
Because it puts bonds with different prices, coupons and maturities onto one yearly rate. Investor.gov calls it a widely used measure for comparing bonds [1].
Sources
Grade A = primary source (regulator, government agency, official rulebook or the index provider's own documents). Numbers in brackets in the text point here.
- U.S. SEC — Investor.gov. What Are Corporate Bonds? — Investor Bulletin (2013). Accessed 2026-10-03.A
- FINRA. Understanding Bond Yield and Return (2022). Accessed 2026-10-03.A
This page is general education, not personal financial, tax or legal advice. Figures in worked examples are hypothetical and calculated before taxes and fees unless stated. Rules and limits change; check the linked primary sources for the current version. How we check every page.
