Yield to Maturity

Yield to Maturity — a comprehensive return metric that assumes the investor holds a note from purchase through the borrower's last scheduled payment. YTM accounts for the purchase discount or premium, all coupon (interest) payments, the return of principal over time, and the time value of money. It provides a single annualized percentage that allows apples-to-apples comparison between notes with different coupon rates, remaining terms, and purchase prices.

For secondary market note investors, YTM is most useful when evaluating performing notes expected to pay through to maturity. However, it has limitations: it assumes no early payoff, no default, and no reinvestment risk on received payments. Since many borrowers refinance or sell before maturity, and non-performing notes may never reach their scheduled payoff date, investors often pair YTM with other metrics like IRR or cash-on-cash return to build a more complete picture of expected performance.