Current yield
A bond’s annual coupon divided by its current market price — a quick measure of income relative to what you pay today.
Current yield expresses a bond’s annual coupon income as a percentage of its current market price. If a bond pays ₹80 a year and trades at ₹1,000, its current yield is 8%. If the price falls to ₹950, the same ₹80 is a current yield of about 8.4%.
Why it matters
For income-focused investors, current yield answers a practical question: for every rupee paid today, how much coupon income arrives each year? It is quick to calculate and easy to compare across coupon-paying bonds.
How to read it
- It ignores any gain or loss if the bond is held to maturity. A bond bought at ₹950 that repays ₹1,000 gives you an extra ₹50 at the end; current yield does not count it, but YTM does.
- It ignores time. A bond maturing next year and one maturing in fifteen years can show the same current yield but carry very different interest rate risk.
- It does not apply to zero-coupon bonds, which pay no coupon.
Common misconceptions
- “Current yield is my return.” It is your income yield at today’s price, not your total return.
- “Current yield and coupon rate are the same.” They match only when the bond trades exactly at face value.
- “A higher current yield is the better deal.” It may simply reflect a lower price — and a lower price can reflect higher credit risk.
In India: Bond platforms and offer documents may quote coupon, current yield and YTM side by side. Check which one a headline number refers to before comparing.
Formula
Current yield = Annual coupon ÷ Current market price × 100
Worked example
For illustration, assume a bond with face value ₹1,000 and a 7% coupon (₹70 a year) trades at ₹1,040. Current yield = 70 ÷ 1,040 × 100 ≈ 6.73%. Because the price is above face value, the YTM would be lower still.
Figures are for illustration only — not a forecast or a recommendation.
Related terms
Coupon
The interest a bond pays its holder, stated as an annual percentage of the bond’s face value and paid on fixed dates.
YTM
Yield to Maturity
The annualised return on a bond bought at today’s price and held to maturity, if every payment arrives as promised and coupons are reinvested at that rate.
Face value
The nominal amount of a bond — what the issuer repays at maturity and the base on which coupon payments are calculated.
Zero-coupon bond
A bond that pays no periodic interest; it is bought at a discount to face value and repays the full face value at maturity.