Current Yield of a Bond

Current Yield

The current yield of a bond measures the returns an investor can expect if he holds the bond for a period of one year. It is calculated as the annual interest received divided by the current price of the bond.

Current Yield = Annual Interest / Current Bond Price

The current bond price is the clean price of the bond.

One must note that the current yield represents the return from the bond at a particular time and does not represent the returns over the lifetime of the bond. The current yield also does not take into account the reinvestment risk.

Example:

Assume that a $100 par bond is currently trading at $95, and pays a coupon of 6%. The current yield will be given as follows:

Current yield = $6/$95 = 6.316%