Current yield


The current yield, interest yield, income yield, flat yield, market yield, mark to market yield or running yield is a financial term used in reference to bonds and other fixed-interest securities such as gilts. It is the ratio of the annual interest payment and the bond's price:

Example

The current yield of a bond with a face value of $100 and a coupon rate of 5.00% that is selling at $95.00 is calculated as follows.

Shortcomings of current yield

The current yield refers only to the yield of the bond at the current moment. It does not reflect the total return over the life of the bond, or the factors affecting total return, such as:
The concept of current yield is closely related to other bond concepts, including yield to maturity, and coupon yield. When a coupon-bearing bond sells at;
  • a discount: YTM > current yield > coupon yield
  • a premium: coupon yield > current yield > YTM
  • par: YTM = current yield = coupon yield.
For zero-coupon bonds selling at a discount, the coupon yield and current yield are zero, and the YTM is positive.