Yield to WorstYTW
Yield to worst is the lowest yield a bond can deliver if the issuer exercises its right to redeem early on the least favourable date for the investor. For callable bonds it is a more cautious figure than yield to maturity.
Yield to maturity assumes a bond lives until its final date. Callable bonds may not: the issuer can repay them early, often when that is worst for the investor. Yield to worst calculates the yield for every possible repayment date and reports the lowest. It is the cautious number to use when comparing callable bonds. This entry explains how it works and when it differs from yield to maturity.
- Category
- Bonds and Interest Rates
- Reading time
- 4 min
- Also called
- Yield to call, Worst-case yield, Callable bond yield
- Updated
Yield to worst in plain words
A callable bond can be paid off by the issuer before maturity, usually at the call price plus accrued interest, after which interest stops.1 See Callable and Putable Bonds.
Each possible call date gives a different yield — a yield to call. Yield to worst is the lowest of these and the yield to maturity. If you pay more than face value, an early call cuts your return, so yield to worst can be well below yield to maturity. See Yield to Maturity.
How to use yield to worst, step by step
List the call dates and prices
From the bond’s terms.
Calculate yield to each call date
Using the call price as the final payment.
Include yield to maturity
The case where the bond is never called.
Take the lowest
That is the yield to worst.
Compare bonds on it
Especially premium-priced callable bonds.
Remember the basics
Yield still depends on the price you pay for the coupon.2
Worked examples
Example 1 — Premium callable bond
Call riskA bond with a 6% coupon trades at $1,060, maturing in 8 years, callable at $1,000 in 2 years.
| Yield to maturity | ≈ 5.1% |
| Yield to call (2 years) | ≈ 2.9% |
| Yield to worst | ≈ 2.9% |
If called early, the $60 premium is lost over just two years, so the cautious yield is much lower.
Example 2 — Discount callable bond
DiscountA callable bond trades at $940, below its call price of $1,000.
| Early call | Raises the yield (gain arrives sooner) |
| Yield to worst | Usually yield to maturity |
For bonds bought at a discount, an early call helps the investor, so yield to maturity is usually the worst case.
Example 3 — Comparing two bonds
ComparisonBond A: YTM 5.5%, YTW 3.2%. Bond B (non-callable): YTM 4.8%.
| On YTM | A looks better |
| On YTW | B is safer |
Yield to worst stops callable bonds from looking better than they are.
Yield measures for callable bonds
| Aspect | Assumes | Use |
|---|---|---|
| Yield to maturity | Held to final maturity | Baseline |
| Yield to call | Repaid on a specific call date | Scenario check |
| Yield to worst | The least favourable of all dates | Cautious comparison |
| Current yield | Coupon ÷ price only | Income snapshot. See Current Yield |
Why yield to worst matters
Avoiding overstated yields
Callable premium bonds can show misleading YTMs.
Fund reporting
Many bond funds report yield to worst.
Rate scenarios
Calls become likely when rates fall. See Interest Rate.
Comparing bonds fairly
Callable vs. non-callable.
Advantages and disadvantages
Advantages
- Gives a conservative yield for callable bonds.
- Prevents overestimating returns on premium bonds.
- Widely used and reported.
Disadvantages
- Assumes the worst case, which may not happen.
- Ignores reinvestment of the returned cash.
- Requires knowing all call terms.
Going deeper
Read as far as you need. Each level builds on the one before it.
Worst for the investor
Beginner
“Worst” means the lowest yield for you — usually the earliest call when the bond trades above its call price.
Reinvestment risk
Intermediate
Calls usually happen when rates have fallen, so the returned money must be reinvested at lower yields.
Option-adjusted measures
Advanced
Yield to worst picks one scenario. Option-adjusted spreads model many rate paths instead. See Z-Spread and Option-Adjusted Spread.
Common mistakes
Comparing callable bonds on YTM
Use yield to worst.
Ignoring call dates
They can end the bond early.
Overpaying for high coupons
Premiums are lost if called.
Assuming worst case always happens
It is a floor, not a forecast.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Yield to worst is the lowest yield across call dates and maturity.
- It matters most for callable bonds bought at a premium.
- Yield to call uses a call date and price as the end point.
- For discount bonds, YTM is usually the worst case.
- Compare callable bonds on yield to worst.
Frequently asked questions
Is yield to worst the same as yield to call?
Why do funds report yield to worst?
Does yield to worst apply to non-callable bonds?
Further learning
- Callable and Putable Bonds
Where call features come from.
- Yield to Maturity
The baseline yield measure.
- Interest Rate
Why calls happen when rates fall.
- Duration
Rate sensitivity of bonds.
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). Callable or Redeemable Bonds (glossary) (opens in a new tab) Checked .
- Investor.gov (SEC). Yield (glossary) (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.