Yield to maturity (YTM) is the single discount rate that equates a bond's market price to the present value of all its future cash flows, both coupons and principal. It is the most commonly quoted measure of a bond's return and the number reported in Treasury auction results, on trading screens, and in yield curve charts.
where C is the coupon payment, Face is par value, and n is the number of periods to maturity.
YTM assumes two things that rarely hold exactly:
The bond is held to maturity: if sold early, the realized return will differ based on the price at sale
Coupons are reinvested at the YTM rate: in practice, reinvestment rates fluctuate with the market, creating reinvestment risk that is larger for long-maturity, high-coupon bonds
Despite these assumptions, YTM remains the standard because it compresses a bond's cash flow profile into a single comparable number. When the Treasury publishes daily yield curve rates, these are par yields, meaning the YTM of hypothetical bonds priced at par for each maturity.
YTM differs from related yield measures:
Spot rate (zero-coupon yield): the discount rate for a single cash flow at a specific maturity, free of reinvestment assumptions
Par rate: the coupon rate at which a bond would be priced at par, derived from the spot curve
Forward rate: the implied yield for a future period, derived from the relationship between spot rates
For zero-coupon bonds (like Treasury STRIPS), YTM and the spot rate are identical because there are no intermediate cash flows to reinvest.
Related Terms
Par Rate— The coupon rate at which a bond prices at par (100), forming the standard Treasury yield curve.
Spot Rate— The yield on a zero-coupon bond for a specific maturity, representing the pure time value of money.
Duration— Duration measures a bond's price sensitivity to interest rate changes. It is the foundation of fixed-income risk management.