Pull up the bond screen at any brokerage and one bond shows three different percentages at once. Coupon 4%, current yield 4.4%, yield to maturity 6.4%. All three are correct, and only the last answers the question you came with: what does this pay me if I buy at today's price and hold to the end? Every figure here is illustrative.

Three Yields, One Bond

Each number divides the same annual interest by something different.

The coupon rate is set when the bond is issued and never changes. It is the yearly interest as a percent of face value, the $1,000 the issuer returns at maturity. A 4% coupon on $1,000 of face means $40 a year, whatever the bond later trades for.

Current yield divides that $40 by what you paid instead. Buy for $900 and your current yield is 40 divided by 900, or 4.4%. It measures income on your money now, and stops there.

Yield to maturity adds what current yield ignores. You paid $900 for something that returns $1,000 on a fixed date, and that $100 is part of your return. It is the single annual rate that makes every future payment, coupons plus the $1,000, add up to the price you paid.

A Bond Bought Below Par

Take a bond with $1,000 face value, a 4% coupon, five years left, and a price of $900.

You can approximate its yield to maturity by hand:

Approximate YTM = (annual coupon + (face value - price) / years) / ((face value + price) / 2)

The coupon is $40. The gain is (1,000 - 900) divided by 5, or $20 a year. The average of face and price is (1,000 + 900) divided by 2, or $950. So (40 + 20) divided by 950 gives 6.3%.

That is an approximation. Solved properly the answer is 6.4%, and the shortcut usually lands within a tenth of a point.

Line the three up: coupon 4%, current yield 4.4%, yield to maturity 6.4%. That order holds for any bond trading below face value, because the climb from $900 back to $1,000 is a gain on top of the coupons.

A Bond Bought Above Par

Now flip it. Same $1,000 face value, a 6% coupon paying $60 a year, five years left, and a price of $1,100 because market rates fell after it was issued.

Current yield is 60 divided by 1,100, or 5.5%, below the coupon rate already, since you paid more than face for the same $60.

Yield to maturity drops further. In the same formula the gain term becomes (1,000 - 1,100) divided by 5, which is negative $20 a year. So (60 - 20) divided by 1,050 gives 3.8%. Solved exactly, 3.77%.

The $100 premium does not come back. At maturity you receive $1,000, not the $1,100 you paid, so the price drifts toward par as the date approaches. That drift, the pull to par, eats $100 of your return, which is why a premium bond's yield to maturity always sits below its coupon rate. A 6% coupon beside a 3.8% yield is not a broken screen.

Why Price and Yield Move in Opposite Directions

The coupon payment is fixed in dollars. Only the price can move. If buyers decide this bond should return more, the only route there is paying less for the same $40, so the price falls as the yield rises. FINRA states it plainly: price and yield are inversely related.

That also explains why discounts and premiums exist. A bond paying 6% is worth more than $1,000 once new bonds pay 4%, and buyers bid it up until its yield matches what the new bonds offer. How far a price moves for a given change in rates is a separate measure, duration.

The Reinvestment Assumption Behind the Number

Here is the honest caveat. Yield to maturity is not a promise of 6.4%. It is the rate that balances the equation, and the equation assumes you reinvest every coupon at that same 6.4% until maturity.

Go back to the discount bond. Reinvest each $40 coupon at 6.4% and after five years you hold about $1,227, exactly what $900 growing at 6.4% for five years comes to.

Spend the coupons instead, or leave them in cash paying nothing, and you finish with $1,200: five payments of $40 plus the $1,000. On $900 over five years that works out to roughly 5.9% a year. The gap is reinvestment risk, and it is real, because the rate you can get on a year-three coupon is unknowable when you buy.

The gap stays small on short bonds with low coupons, and widens on long bonds with big coupons, where reinvested interest is most of the total return.

Yield to Call and Yield to Worst

Plenty of corporate and municipal bonds are callable, meaning the issuer can pay you back early on set dates at a set price. Issuers call when rates have fallen and refinancing is cheaper, which is exactly when you would rather keep the bond.

Yield to call is the same arithmetic with two swaps: the call date replaces the maturity date, and the call price replaces face value. Give the premium bond above a call at $1,000 in two years. The approximation becomes (60 - 50) divided by 1,050, about 0.95%, and the exact figure is 0.93%. Same bond, same price, about a quarter of the yield to maturity.

Yield to worst is the lowest of them all: yield to maturity and the yield to every call date the bond carries. On a premium bond it is usually the nearest call; on a discount bond, where the issuer has little reason to call, it is usually yield to maturity. Screens differ over which one sits in the yield column, so read the label. For municipal bonds MSRB Rule G-15 makes it firmer: your trade confirmation must show a yield computed to the lower of an in-whole call or maturity.

A Bond Fund Has No Maturity Date

Everything above rests on one date when somebody hands you $1,000. A bond fund has no such date. It holds hundreds of bonds maturing at different times, sells them as they age, and buys fresh ones, so nothing is pulled to par and no day exists when your principal comes back.

Fund pages usually publish a 30-day SEC yield, a standardized figure the SEC requires so funds can be compared on the same basis. It is built from the last month of interest earned, minus expenses, and moves as the portfolio and its prices move. Some pages also show a distribution yield, which annualizes recent payouts and often reads higher.

Neither is a rate you lock in. Buy one bond at a 6.4% yield to maturity, hold it to the end, and if the issuer pays you know roughly what you get. Buy a fund quoting 6.4% and you know what its holdings earned last month. What you actually receive depends on where rates go next.