What is Current Yield?
Current Yield is the simplest bond yield measure: the annual coupon payment divided by the current market price. Unlike Yield to Maturity, Current Yield ignores the time value of money and the gain or loss from buying at a discount or premium to par. It is most useful as a quick income yield comparison: how much cash income does this bond generate relative to its current cost? For bonds trading near par, Current Yield and YTM are close. The gap between them widens as bonds trade at larger premiums or discounts. Current Yield overstates the true return for premium bonds (ignores capital loss) and understates it for discount bonds (ignores capital gain).
Formula
Current Yield = Annual Coupon / Current Market Price × 100%
Annual Coupon = Face Value × Coupon Rate
Calculator
How to Use
- 1Find the annual coupon: Face value (typically $1,000) × coupon rate. A 5% bond pays $50/year.
- 2Note the current market price: The price you would pay today to buy the bond.
- 3Divide and express as %: $50 / $950 = 5.26%. Higher than the 5% coupon rate because the bond trades at a discount.
- 4Compare to YTM: For a full return picture, always check YTM. Current yield is a quick filter, not a complete measure.
Worked Example
Example: Discount bond
Face Value
$1,000
Coupon Rate
4%
Market Price
$920
Annual coupon = $1,000 × 4% = $40. Current Yield = $40 / $920 = 4.35%. The bond yields more than its stated coupon rate because it trades at a discount. YTM would be even higher (≈5.0%) because it also accounts for the $80 capital gain at maturity.