Yield to redemption

The measure of yield on a financial instrument - for example a bond - from the current date until its expected redemption date.

It takes into account the capital gain on a bond (or other financial instrument) trading at a discount, or the capital loss on a bond (or other financial instrument) trading at a premium.

Yield to redemption is similar to yield to maturity.

However, the expected redemption date may be earlier than the final maturity date, depending on any related options in favour of the issuer or the investor.

More specifically the return on a security held to its expected redemption date, taking account of the coupon and re-investment rates and the buying price compared to its face value.

Yield to redemption also assumes that all coupons are fully paid out on their due dates and reinvested at the same yield and that the principal is paid back in full upon redemption.

It is an internal rate of return calculation performed on the security’s expected cash flows, including the initial investment outflow (= the current market value).

Also known as the redemption yield.

See also

• Bond
• Cost of debt
• Internal rate of return
• Macaulay duration
• Yield
• Yield to maturity
• Yield to worst