Glossary

Yield to Maturity (YTM) is the total return an investor can expect to receive if they hold a bond until it matures. 💰

YTM takes into account the bond's current market price, its face value, the time remaining until maturity, and all interest payments that will be made during that period. It is essentially the internal rate of return on a bond, reflecting the annualised rate at which the bond's price and interest payments will compound until maturity.

Example: A 10-year bond with a face value of £1,000, a coupon rate of 5%, and a current market price of £900 will have a YTM higher than its coupon rate because the investor will receive the face value at maturity, which is more than the purchase price.

Fun fact: YTM is often called the bond's "yield" in casual conversations, but there are other types of bond yields, such as current yield or yield to call. YTM is the most comprehensive measure, as it considers all aspects of a bond's return. 🧮