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Yield to call (YTC)

The return on a callable bond assuming the issuer redeems it at the earliest call date rather than letting it run to maturity.

A callable-bond gives the issuer an option to repay early, usually when rates have fallen and it can refinance cheaper. Yield to call reruns the yield-to-maturity maths with the call date as the end date and the call price as the redemption amount.

Because the issuer exercises when it suits them and not you, the call caps how high a premium bond's price can go. Buyers of high-coupon bonds trading well above par should assume the call happens.

Example: a 7% bond trades at 108, matures in eight years, and is callable in two years at 102. Yield to maturity is about 5.7%, but yield to call is only about 3.9%. The call scenario is the one to price off.

Related: callable-bond, yield-to-worst, yield-to-maturity, premium-bond, negative-convexity

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Payoff of a long call at expiryA flat loss equal to the premium below the strike, turning upward at 45 degrees above it.Profit / loss per share08595115125Strike 105Max loss 3 — the premium paidBreakeven 108Profit keeps growingUnderlying price at expiry
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.

Educational only, not advice. Spotted an error? Post in Site Feedback.