Yield to maturity

Yield to maturity is the total annualized return an investor would earn by buying a bond at its current price and holding it until it matures, assuming all coupon payments are reinvested at the same rate. It accounts for the bond's coupon payments, its current market price, its par value, and the time remaining until maturity, all combined into one figure that lets bonds with different structures be compared on equal footing.

Unlike current yield, which only measures coupon income relative to price, yield to maturity also captures any capital gain or loss built into the bond's price relative to its par value. A bond trading below par will have a yield to maturity higher than its stated coupon rate, since the investor also captures a gain as the price rises to par by maturity, while a bond trading above par will have a yield to maturity lower than its coupon rate for the opposite reason.

Yield to maturity is the standard figure quoted when comparing bonds in practice, since it reflects the full expected return of holding a bond to the end rather than just one piece of it. It does rest on the assumption that coupon payments get reinvested at the same rate as the yield to maturity itself, an assumption that will not hold exactly if interest rates change over the life of the bond, part of why reinvestment risk remains a real consideration even for an investor focused on this single number.