Yield to maturity
The total yield on a bond obtained by equating the bond's current market value to the discounted cash flows promised by the bond. Also referred to as actuarial yield or just yield. |
Similar financial terms
Yield curveThe yield curve, which plots the term structure, shows the relationship between yield (interest rate) and maturity for a set of similar securities. Typically, different yield curves are drawn for zero-coupon bonds (zero-coupon yield curve) and for coupon bonds quoted at par (par yield curve).
Yield
In general, the yield is the return on an investor's capital investment. For bonds it is the coupon rate of interest divided by the purchase price, called current yield. Also, the rate of return on a bond, taking into account the total of annual interest payments, the purchase price, the redemption value, and the amount of time remaining until maturity.
Dividend yield
A stock's daily percentage summary of yield, calculated by dividing annual dividend per share by the day's closing stock price.
Yield to call
The percentage rate of a bond or note, if you were to buy and hold the security until the call date. This yield is valid only if the security is called prior to maturity. Generally bonds are callable over several years and normally are called at a slight premium. The calculation of yield to call is based on the coupon rate, length of time to the call and the market price.
Yield spread strategies
Strategies that involve positioning a portfolio to capitalize on expected changes inyield spreads between sectors of the bond market.
Yield ratio
The quotient of two bond yields.
Yield curve strategies
Positioning a portfolio to capitalize on expected changes in the shape of the Treasury yield curve.
Yield curve option-pricing models
Models that can incorporate different volatility assumptions along the yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models.
Weighted average portfolio yield
The weighted average of the yield of all the bonds in a portfolio.
Annual percentage yield (APY)
The effective, or true, annual rate of return. The APY is the rate actually earned or paid in one year, taking into account the affect of compounding. The APY is calculated by taking one plus the periodic rate and raising it to the number of periods in a year. For example, a 1% per month rate has an APY of 12.68% (1.01^12).
Steepening of the yield curve
A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has increased.
Riding the yield curve
Buying long-term bonds in anticipation of capital gains as yields fall with the declining maturity of the bonds.
Required yield
Generally referring to bonds, the yield required by the marketplace to match available returns for financial instruments with comparable risk.
Reoffering yield
In a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds to investors.
Relative yield spread
The ratio of the yield spread to the yield level.
Realized compound yield
Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and rolled over until the bond matures.
Pure yield pickup swap
Moving to higher yield bonds.
Parallel shift in the yield curve
A shift in the yield curve in which the change in the yield on all maturities is the same number of basis points. In other words, if the 3 month T-bill increases 100 basis points (one percent), then the 6 month, 1 year, 5 year, 10 year, 20 year, and 30 year rates increase by 100 basis points as well.
Non-parallel shift in the yield curve
A shift in the yield curve in which yields do not change by the same number of basis points for every maturity.
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.
Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.
Bond-equivalent yield
The annualized yield to maturity computed by doubling the semiannual yield.
Capital gains yield
The price change portion of a stock's return.
Convenience yield
The extra advantage that firms derive from holding the commodity rather than the future.
Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.
Current yield
For bonds or notes, the coupon rate divided by the market price of the bond.
Yield to worst
The bond yield computed by using the lower of either the yield to maturity or the yield to call on every possible call date.
Yield burning
A municipal bond financing method. Underwriters in advance refundings add large markups on US Treasury bonds bought and held in escrow to compensate investors while waiting for repayment of old bonds after issuance of the new bonds. Since bond prices and yields move in opposite directions, when the bonds are marked up, they "burn down" the yield, which may violate federal tax rules and diminishes tax revenues.
Term to maturity
The term to maturity of a bond, commonly referred to as maturity or term, is the number of years over which the issuer has promised to meet the conditions of the obligation set out in the bond indenture. The maturity of a bond refers to the date that the debt will cease to exist, at which time the issuer will redeem the bond by paying the principal (or face value).
Weighted average remaining maturity
The average remaining term of the mortgages underlying a MBS.
Weighted average maturity
The Weighted average maturity (WAM) of a MBS is the weighted average of the remaining terms to maturity of the mortgages underlying the collateral pool at the date of issue, using as the weighting factor the balance of each of the mortgages as of the issue date.
Time to maturity
The time remaining until a financial contract expires. Also called time until expiration.
Stated maturity
For the CMO tranche, the date the last payment would occur at zero CPR.
Return-to-maturity expectations
A variant of pure expectations theory which suggests that the return that an investor will realize by rolling over short-term bonds to some investment horizon will be the same as holding a zero-coupon bond with a maturity that is the same as that investment horizon.
Remaining maturity
The length of time remaining until a bond's maturity.
Projected maturity date
With CMOs, final payment at the end of the estimated cash flow window.
Original maturity
Maturity at issue. For example, a five year note has an original maturity of 5 years; one year later it has a maturity of 4 years.
Maturity spread
The spread between any two maturity sectors of the bond market.
Maturity phase
A phase of company development in which earnings continue to grow at the rate of the general economy.
Maturity factoring
Factoring arrangement that provides collection and insurance of accounts receivable.
Maturity
For a bond, the date on which the principal is required to be repaid. In an interest rate swap, the date that the swap stops accruing interest.
Balloon maturity
Any large principal payment due at maturity for a bond or loan with or without a a sinking fund requirement.
Current maturity
Current time to maturity on an outstanding debt instrument.
