Definition
YTW is the minimum yield an investor can receive if the issuer exercises any early redemption option. It is calculated as the lowest of YTM and all possible YTCs. For non-callable bonds, YTW equals YTM. Investors should use YTW rather than YTM when evaluating callable bonds to assess worst-case return scenarios.
functions Formula
YTW = min(YTM, YTC₁, YTC₂, ...)
lightbulb Example
A callable bond has YTM of 5.2%, YTC (first call in 3 years) of 4.5%, and YTC (second call in 5 years) of 4.8%. YTW = 4.5%—the worst case if the issuer calls at the earliest opportunity.
verified_user Key Points
- Most conservative yield measure for callable bonds
- Should be used instead of YTM for callable bonds
- Equals YTM for non-callable bonds
- Represents minimum expected return