Yield to call (YTC)
Also known as: YTC
Yield to call (YTC) is the total return an investor earns on a callable bond if the issuer redeems it on the earliest call date instead of letting it mature. It accounts for the bond's price, coupon payments, call price, and the shortened time frame.
Yield to call (YTC) measures the annualized return on a callable bond assuming the issuer calls it at the first opportunity. While yield to maturity (YTM) projects returns over the bond's full life, YTC compresses the calculation into the period ending on the call date and replaces the maturity value with the call price.
The comparison between YTC and YTM depends on where the bond trades. For a bond purchased at a premium (above par), an early call means the investor loses the premium faster, so YTC is lower than YTM. For a bond bought at a discount, the investor reaches the redemption value sooner, so YTC is higher than YTM. The standard yield ordering for a premium bond runs: nominal yield > current yield > YTM > YTC, with the order reversed for discount bonds.
YTC matters because issuers typically call bonds when interest rates fall, refinancing their debt at a cheaper rate — exactly when investors would least like to be handed their money back. The lowest possible yield among a bond's YTM and all of its call scenarios is known as the yield to worst, the most conservative figure quoted to customers.
Yield to call is a staple of the SIE, Series 7, and Series 66 exams. Test questions frequently present a bond at a premium or discount and ask you to rank its yields, identify the yield to worst, or explain why a customer quote must reflect the lower of YTM and YTC.
Key takeaways
- Yield to call assumes a callable bond is redeemed at the earliest call date rather than at maturity.
- For premium bonds, YTC is the lowest yield; for discount bonds, YTC is the highest.
- Issuers usually call bonds when interest rates fall, so investors face reinvestment risk at lower rates.
- Yield to worst is the lowest of a bond's YTM and all possible YTC figures.
- The SIE, Series 7, and Series 66 exams test yield ordering for premium and discount bonds.