What is Yield to Call?
Yield to Call (YTC) is the yield on a callable bond assuming the issuer exercises its option to redeem the bond at the first call date rather than holding it to final maturity. Issuers typically call bonds when prevailing rates fall below the coupon rate, allowing them to refinance at a lower rate and leaving investors with reinvestment risk. For bonds trading at a premium to par, YTC is typically lower than YTM because the investor receives par (not the premium price) at call. Sophisticated bond investors always compute both YTM and YTC and use the lower of the two (known as Yield to Worst, or YTW) as their conservative return assumption.
Formula
Same as YTM but use call date and call price:
Price = Σ [C / (1+YTC)^t] + Call Price / (1+YTC)^n_call
Call Price = price at which issuer redeems early (often par + a small call premium)
n_call = years until first call date
Calculator
How to Use
- 1Enter bond details: Face value, coupon rate, current price, and coupon frequency.
- 2Enter call details: Years to first call date and the call price (often 100 or 101).
- 3Solver computes YTC: Same numerical method as YTM, but using call date and call price instead of maturity date and par.
- 4Compare YTM and YTC: Yield to Worst = min(YTM, YTC). Use YTW for conservative analysis of callable bonds.
Worked Example
Example: Callable corporate bond
Price
$1,050
Coupon
6%
YTM
5.4%
Call in
3 years at $1,000
YTC ≈ 4.2% (the issuer calls at $1,000, causing a $50 capital loss from the $1,050 purchase price). YTW = min(5.4%, 4.2%) = 4.2%. Investors buying this bond at $1,050 should expect at most 4.2% if the bond is called, not the more attractive 5.4% YTM. Always check callability before buying premium bonds.