Current Yield
Current yield is a bond’s annual coupon divided by its current price. A bond paying $40 a year and trading at $950 has a current yield of about 4.2%. It ignores any gain or loss at maturity.
Current yield is the quickest way to see how much income a bond pays relative to its price today. It takes one line to calculate, which makes it popular for comparing income — but it leaves out an important piece: the gain or loss you make if you hold the bond until it is repaid. This entry explains the formula, how it relates to the coupon rate and yield to maturity, and when it is useful.
- Category
- Bonds and Interest Rates
- Reading time
- 4 min
- Also called
- Running yield, Flat yield, Bond current yield
- Updated
Current yield in plain words
Take the bond’s yearly interest and divide it by the price you would pay today. That is the annual rate of return from the coupon alone, measured against the purchase price.1
The coupon is the interest the bond promises and when it is paid.2 If you pay less than face value, current yield is higher than the coupon rate; if you pay more, it is lower. See Yield to Maturity.
How to calculate it, step by step
Find the annual coupon
Coupon rate × face value, e.g. 5% × $1,000 = $50.
Find the current price
The price you would pay in the market today.
Divide
Current yield = annual coupon ÷ current price.
Compare with the coupon rate
Above it if the bond trades at a discount, below it at a premium.
Check yield to maturity
For the full return including the pull to face value.
Remember the risks
Prices of fixed-rate bonds fall when market rates rise.3 See Interest Rate.
Worked examples
Example 1 — Bond at a discount
DiscountA $1,000 bond with a 4% coupon trades at $950.
| Annual coupon | 4% × $1,000 = $40 |
| Current yield | $40 ÷ $950 ≈ 4.2% |
Buying below face value lifts the income yield above the coupon rate.
Example 2 — Bond at a premium
PremiumA $1,000 bond with a 6% coupon trades at $1,100.
| Annual coupon | $60 |
| Current yield | $60 ÷ $1,100 ≈ 5.5% |
Paying more than face value lowers the yield — and the $100 premium is lost by maturity.
Example 3 — Why current yield is not enough
ComparisonTwo bonds both show a 5% current yield. Bond A trades at $800 and matures in 2 years; bond B trades at $1,000.
| Bond A extra return | $200 gain to face value |
| Bond B extra return | None |
Same current yield, very different total returns. Use yield to maturity for the full picture.
Current yield vs. other measures
| Aspect | Includes | Leaves out |
|---|---|---|
| Coupon rate | Coupon vs. face value | Today’s price |
| Current yield | Coupon vs. today’s price | Gain or loss to maturity |
| Yield to maturity | Coupon, price and time to maturity | Default and reinvestment risk |
| Dividend yield (shares) | Dividend vs. share price | Price changes. See Dividend Yield |
When current yield is useful
Quick income check
How much cash a bond pays relative to its price.
Comparing with dividends
Income from bonds vs. shares.
Long-dated bonds
The pull to face value matters less when maturity is far away.
Screening
A first filter before calculating yield to maturity.
Advantages and disadvantages
Advantages
- Very simple to calculate.
- Shows income relative to the price you pay.
- Useful for comparing income across bonds.
Disadvantages
- Ignores the gain or loss to face value.
- Ignores time to maturity.
- Not meaningful for zero-coupon bonds.
- Ignores default risk.
Going deeper
Read as far as you need. Each level builds on the one before it.
Price and yield move opposite
Beginner
When the price falls, the same coupon is a larger share of it, so current yield rises.
Zero-coupon bonds
Intermediate
A bond that pays no coupon has a current yield of zero, even though it can have a healthy yield to maturity. See Zero-Coupon Bond.
High current yields can signal risk
Advanced
A very high current yield often means a low price — which may reflect a higher risk of default. See Credit Spread.
Common mistakes
Treating current yield as total return
Add the gain or loss to maturity.
Comparing it with yield to maturity
They measure different things.
Chasing the highest yield
Check credit quality.
Using it for zero-coupon bonds
It is always zero there.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Current yield = annual coupon ÷ current price.
- Above the coupon rate at a discount, below it at a premium.
- It ignores the gain or loss to maturity.
- Use yield to maturity for total return.
- Very high current yields can signal default risk.
Frequently asked questions
Is current yield the same as yield to maturity?
Why did my bond’s current yield change?
Is a higher current yield better?
Further learning
- Yield to Maturity
The full-return measure.
- Treasury Bills, Notes and Bonds
The benchmark bonds.
- Credit Spread
Why riskier bonds yield more.
- Interest Rate
What moves bond prices.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Investor.gov (SEC). Yield (glossary) (opens in a new tab) Checked .
- Investor.gov (SEC). Coupon (glossary) (opens in a new tab) Checked .
- Investor.gov (SEC). Investor Bulletin: Fixed Income Investments — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.