Investing term
What is YTM (Yield to Maturity)?
The total annualised return a bondholder earns if they buy the bond today and hold it to maturity.
Yield to maturity (YTM) is the total annualised return you'd earn by buying a bond today and holding it to maturity, capturing both its coupon payments and any difference between its current price and its face value. It's the most complete single measure of a bond's return, because it accounts for the price you actually pay, not just the coupon.
That completeness is what makes it useful. A bond's coupon tells you the fixed payment, but if you buy the bond below face value, you also gain as its price climbs to par at maturity — and YTM rolls both into one figure. This lets you compare bonds with different prices, coupons, and maturities on equal footing: two bonds with different coupons and prices can have the same YTM, meaning the same total return if held to maturity. It's the number bond investors actually use to judge and compare returns, in place of the coupon alone.
Yield to maturity rolls a bond's coupon and the gain from a below-par price up to face value into one total-return figure — the complete measure that lets you compare bonds fairly, unlike the coupon alone.
For example
A bond bought below face value has a YTM higher than its coupon, because you collect the interest plus the gain as its price climbs to face value at maturity — YTM rolling both into one return figure.
Learn it by doing
That's YTM (Yield to Maturity) in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 19, Beyond Stocks).
Try the free lesson →Why it matters to you
YTM matters because it's the true, comparable measure of a bond's return — the number that lets you judge bonds with different coupons, prices, and maturities on the same basis. The coupon alone is misleading, since it ignores the price you pay; YTM corrects for that by including the pull toward face value at maturity. For anyone actually choosing between bonds, YTM is the figure that answers the real question: what total return will I earn if I hold this to the end?
⚠ Comparing bonds on coupon instead of YTM
The coupon is the fixed rate, but it ignores the price you pay — a bond bought below face value earns more than its coupon (as it climbs to par), and one bought above par earns less. Judging or comparing bonds on coupon alone can pick the wrong one. YTM is the figure that captures the full return, and it's what you should compare.