Yield to Call (YTC)

In bond investment, the term yield to call (YTC) denotes the interest which a bond holder can expect to earn on a callable bond. Callable bonds can be terminated by their issuer before the end of the bond term. Issuing callable bonds allows borrowers to refinance their debt when more affordable loans become available.

The YTC of a bond is determined based on the point in the bond term at which interest rates are likely to drop and, subsequently, when the bond’s issuer is likely to exercise the call option. This may be the earliest possible call date (see: Yield to worst), or it may be a point in the future at which a key announcement which may affect interest rates will be made, for example.

Example of yield to call:

You buy a 10,000-Swiss-franc callable bond which has a 5% interest rate and a 10-year term. The 500-franc coupon is paid out annually. If you were to keep the bond until it matured, you would earn a total yield of 5000 francs. However, you expect interest rates to drop in 6 years, and that the bond issuer will call the bond at that time. In this case, bond’s estimated Yield to call would be 3000 francs (500 francs x 6 years).

See also: Yield to maturity

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