Yield to call financial definition of yield to call
yield to call
Also found in: Acronyms
Yield to Current Call
The lowest possible yield
on a callable bond
. If a callable bond is called
, the bondholder
only earns interest
on the time that has elapsed between purchasing the bond
and its early redemption
. This yield can be significantly less than what would have been earned had the bond been held until maturity. The yield to current call assumes that the bond is called on the first date permitted in the bond agreement. Determining the yield to current call is an important part of risk analysis in evaluating a callable bond. It is also called yield to worst. See also: Yield to call
, yield to maturity
yield to call
When is yield to call more relevant than yield to maturity?
The annual return on a bond, assuming the security will be redeemed at the call price on the first date permitted. This measure of yield includes interest payments and price depreciation because bonds are quoted in this way only if they sell above the call price.
Yield to call is more relevant than yield to maturity when interest rates are declining and you are concerned about the yield on a premium-priced bond. What you really want to know is how much you will make on an investment that is going to pay you an above-market rate of income for some period of time but then may produce only a partial return of your original principal at a later date when the bond is called. If the income flow to you is sufficiently above the going rate for par-priced bonds, and if it lasts long enough, then the loss of principal that might result from a bond being called is not a problem. In any case, the yield to call formula takes this principal loss into account: the shorter the time period a premium-priced bond has before its first call date versus its maturity date, the greater the disparity between the bond's yield to call and its yield to maturity.Stephanie G. Bigwood, CFP, ChFC, CSA, Assistant Vice President, Lombard Securities, Incorporated, Baltimore, MD
References in periodicals archive
While yield to call
can look attractive under certain circumstances, buyers should take into consideration the lower reinvestment rates that will be offered for subsequent investments and should calculate an overall horizon return.
The bonds are callable after 90 days provided that the call results in an effective yield to call
of 13 percent.
Western warplanes began hitting Libyan government forces last month, but long-time leader Gaddafi has refused to yield to calls
from rebel groups and other governments to step down.
But in a sign that Mubarak could yet yield to calls
for his exit, the German magazine Der Spiegel reported that plans are being devised for the Egyptian dictator to travel to Germany for a "prolonged health check" that would allow him a dignified departure from his country.
Despite the expectation that British Gas will post such substantial profits, the company is unlikely to yield to calls
to reduce household bills, arguing that its margins will soon feel the pressure of rising wholesale gas prices.