Transparent method
The formula
Worked example
Example inputs
How to interpret the result
A callable bond's yield to maturity assumes it's held to maturity, but the issuer holds the actual option to redeem it early at the call price, usually when rates have fallen enough that refinancing benefits them at the bondholder's expense. Yield to call estimates return under that earlier, less favorable scenario, often the more realistic number for a bond trading above its call price.
Before you rely on it
What to check
Compare yield to call against yield to maturity and use the lower of the two as the more conservative, realistic expected return on a callable bond.
The common error
Where people go wrong with yield to call calculator
Quoting a callable bond's yield to maturity as if the call option didn't exist. On a premium bond likely to get called, yield to maturity overstates the return an investor will actually realize.
Sensitivity evidence
How bond market price changes the estimated yield to call
| Bond market price | Estimated yield to call | Annual coupon income | Call premium or discount |
|---|---|---|---|
| $840 | 11.5% | $60 | $180 |
| $945 | 8.1% | $60 | $75 |
| $1,050worked example | 5.1% | $60 | -$30 |
| $1,155 | 2.4% | $60 | -$135 |
| $1,260 | -0.000% | $60 | -$240 |
Every input, tested
Which input moves the estimated yield to call most
| Input | Tested from | To | Estimated yield to call at each end | Swing |
|---|---|---|---|---|
| Bond market price | $945 | $1,155 | 8.1% to 2.4% | 5.7% (112%) |
| Call price | $918 | $1,122 | 2.7% to 7.2% | 4.5% (89%) |
| Annual coupon rate | 5.0% | 7.0% | 4.1% to 6.0% | 1.9% (38%) |
| Face value | $900 | $1,100 | 4.5% to 5.6% | 1.2% (23%) |
| Years to first call | 3.0 years | 5.0 years | 4.8% to 5.2% | 0.389% (7.7%) |
| Coupon payments per year | 1 | 3 | 5.1% to 5.1% | 0.012% (0.2%) |
Two variables at once
Estimated yield to call by bond market price and face value
| Bond market price \ Face value | $800 | $1,000 | $1,200 |
|---|---|---|---|
| $840 | 10.2% | 11.5% | 12.8% |
| $945 | 6.8% | 8.1% | 9.3% |
| $1,050 | 3.9% | 5.1% | 6.2% |
| $1,155 | 1.3% | 2.4% | 3.5% |
| $1,260 | -1.0% | -0.000% | 1.0% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Bond market price | $1,050 |
| Face value | $1,000 |
| Annual coupon rate | 6.0% |
| Call price | $1,020 |
| Years to first call | 4.0 years |
| Coupon payments per year | 2 |
| Estimated yield to call | 5.1% |
| Annual coupon income | $60 |
| Call premium or discount | -$30 |
Where the inputs come from
Bond market price is what the callable bond trades for now, face value and coupon rate define its payments, the call price is what the issuer pays if it redeems the bond, often par or slightly above, and years to first call is the time until the issuer may redeem it. Look up the call schedule in the bond's terms or on a brokerage's bond page. Use the first call date when checking the worst case.
Using the estimated yield to call in a real decision
The lower of yield to call and yield to maturity is the yield to worst, the conservative estimate.
When the result stops applying
Issuers usually call bonds when rates fall and they can refinance cheaper, which is the worst time for the investor, who must reinvest at lower rates. The calculation covers only the first call date, while some bonds can be called on several dates. A bond trading below the call price is unlikely to be called. Make-whole calls have different pricing.
What to compare it with
Compare with the yield to maturity calculator, and see the callable bond page for the same calculation with the risk emphasis. The bond price calculator shows values at different yields, and the duration page shows rate sensitivity. Check the call schedule before buying any premium bond.
People also ask
Frequently asked questions
What is yield to worst?
The lowest yield you could receive from a bond, taking the lower of the yield to maturity and the yield to each possible call date.
Why does a bond priced above par often get called?
Because when rates fall the issuer can replace the high coupon with cheaper debt, and the high price reflects that coupon.
Should I use yield to call or yield to maturity?
For a bond at a premium that is likely to be called, use yield to call. For one below the call price, yield to maturity is the more relevant measure.