Current Yield
Quick Definition
A bond's annual coupon payment divided by its current market price, providing a simple snapshot of income return.
What Is Current Yield?
Current yield is a simple yield calculation that divides a bond's annual coupon payment by its current market price. It tells investors what percentage return they earn from interest payments alone, relative to what they pay for the bond today. The formula is: Current Yield = Annual Coupon / Current Market Price. For example, a bond with a $50 annual coupon trading at $980 has a current yield of 5.10% ($50/$980). Current yield is higher than the coupon rate when the bond trades at a discount, and lower when it trades at a premium. While useful for a quick income comparison, current yield has significant limitations: it ignores capital gains or losses at maturity (the difference between purchase price and par value), the time value of money, and reinvestment of coupon payments. For these reasons, yield-to-maturity (YTM) is considered a more complete measure of a bond's total expected return. Current yield is most useful for income-focused investors comparing bonds for portfolio cash flow purposes.
Current Yield Example
- 1A 5% coupon bond at $1,100 has current yield of 4.55% ($50/$1,100) — less than the coupon rate because you paid a premium
- 2A 3% coupon bond at $900 has current yield of 3.33% ($30/$900) — higher than coupon rate because you bought at a discount
Related Terms
Coupon Rate
The annual interest rate stated on a bond, expressed as a percentage of face value, that determines the periodic coupon payments.
Yield to Maturity (YTM)
The total annualized return an investor earns if a bond is held until maturity, accounting for coupon payments, purchase price, and par value at redemption.
Bond Yield
The return an investor earns from a bond, expressed as an annual percentage, which can be measured in several ways including current yield and yield-to-maturity.
Nominal Yield
The stated interest rate on a bond, expressed as a percentage of par value, without adjusting for inflation or market price changes.
Bond
A fixed-income debt security where investors loan money to an issuer in exchange for regular interest payments and return of principal at maturity.
Treasury Bond (T-Bond)
A long-term U.S. government debt security with a maturity of 20 or 30 years, paying semiannual coupon interest.
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