Yield to Call
The return on a bond assuming the issuer redeems it at the earliest call date rather than at maturity.
Formula
Same calculation as yield to maturity, using the call date and call price in place of the maturity date and face value
Unit
%
In depth
For a callable bond the issuer decides whether to redeem early, and it will do so when refinancing is cheaper — that is, when rates have fallen and the bond has become valuable to hold. The investor therefore faces a one-sided outcome: called away when the bond is doing well, left holding it when it is not. Prudent analysis uses the lower of yield to maturity and yield to call, conventionally called yield to worst. Ignoring the call feature and quoting only yield to maturity overstates the expected return on any callable instrument.
Worked example
A bond with a 9.23% yield to maturity in five years is callable at par in two. If called, the return computed to that date is 8.10%. The honest figure to plan on is the lower of the two, 8.10%.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Yield to Call” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.