Yield to call

Yield to call is the annualized return a bond would generate if it were redeemed by the issuer at its earliest call date, rather than held all the way to its final maturity date. It accounts for the bond's current price, its coupon payments up to the call date, and the call price the issuer would pay to redeem it early.

Yield to call matters specifically for callable bonds, since these bonds carry a real possibility that the issuer exercises its right to redeem the bond before maturity, most likely if interest rates have fallen since issuance. When a callable bond is trading at a premium above its call price, yield to call is often lower than yield to maturity, because being called early at that call price would cut short the return an investor is currently earning at the elevated market price. In that situation, yield to call rather than yield to maturity is generally the more realistic estimate of what the bond will return.

Bond investors evaluating a callable bond typically look at both yield to call and yield to maturity and treat the lower of the two as the more conservative, and often more realistic, expectation for return, sometimes referred to as the yield to worst. This approach avoids overstating a callable bond's expected return by assuming it will run to maturity when the issuer has every financial incentive to call it away sooner.