Yield to call

Yield to call (YTC) is the annualised return an investor earns on a callable bond if it is redeemed by the issuer at the first call date and call price, rather than held to maturity.

What it is

See it move

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A bond has a €1,000 face value, a 7% coupon of €70 a year, trades at €1,050, and is callable in four years at €1,030. Approximate yield to call is [€70 + (€1,030 − €1,050) ÷ 4] divided by [(€1,030 + €1,050) ÷ 2], or (€70 − €5) ÷ €1,040, about 6.25%.

The formula

LaTeX

YTC \approx \frac{C + \frac{CP - P}{n}}{\frac{CP + P}{2}}

Variables

$Y T C$: Approximate yield to call (%)
$C$: Annual coupon payment (€)
$C P$: Call price (€)
$P$: Current market price (€)
$n$: Years to the first call date (years)

A quick estimate of yield to call that does not require solving numerically, using the average of price and call price as the base.