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Yield to worst (YTW)

The lowest yield a bond can produce across every possible redemption date, and the conservative number credit investors actually quote.

A bond with several call dates has several possible yields. Yield to worst runs yield-to-call for each date plus yield-to-maturity, then takes the minimum. It assumes the issuer does whatever hurts you most, which is a reasonable assumption because the option belongs to them.

High-yield indices quote YTW rather than YTM for exactly this reason. Most high-yield bonds are callable, so the maturity-based number is fiction.

Example: a bond shows YTM 8.2%, yield to first call 6.1%, yield to second call 7.0%. Yield to worst is 6.1%, and that is what belongs in your spreadsheet.

Related: yield-to-call, yield-to-maturity, callable-bond, high-yield

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.