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Glossary

Bond Yield

Category — Analytical Metrics
The Yield is the main indicator characterizing bonds. Several of the calculation approaches currently used in practice can be divided into two groups - simple yield rates and compound rates, or compound yield rates.

Simple Yield
  • Current Yield (CY, current yield, flat yield) is a simple yield rate calculated as the coupon rate divided by the bond’s clean price. Unlike coupon yield, it takes into account the current clean price of the bond. Also, it does not take into account the bond yield curve and measures the yield as a percentage of the current clean price. >>
  • Adjusted current yield (ACY) is a simple yield rate that considers the coupon yield and the capital gains yield (the purchase price without ACI).

Compound yield
Compound yield is also called the internal rate of return. Compound yield to maturity (YTM)
- is the compound interest rate over a certain compounding period calculated on the initial investment (clean price + ACI);
- is the discount rate that equates the present value of all future cash flows until the maturity date with the dirty price of the bond.
  • Yield to maturity (annually compounded yield to maturity, YTM (YTP/YTC)) is the annually compounded rate of return regardless of a bond’s coupon period. This approach is used to calculate yields in Russian, Japanese, Norwegian, Italian, Danish, Swedish, and Spanish markets as well as a number of other countries. >>
  • Nominal yield (monthly/quarterly/semi-annually compounded yield to maturity, NY (NYP/NYC)) is the rate of return with monthly/quarterly/semi-annual compounding. This approach is used in US, UK, Canadian, German, Australian, Indian, French, Swiss, Portuguese, South African, Finnish, and Polish markets as well as in some other countries. >>

More information about yield calculation and example of calculations can be found at Bond Calculator Guide.
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