Yield to Maturity (YTM)
The total annualized return if you hold a bond until it matures, including price and coupons.
Why YTM matters more than the coupon rate
A bond's coupon rate is fixed at issuance, but its market price moves. If you buy a bond below face value, your actual return is higher than the coupon alone suggests, and if you buy above face value, it's lower. YTM captures this by folding price, coupon and time together into one comparable number.
How it's calculated
YTM is the discount rate at which the present value of all future coupon payments plus the final face-value repayment equals the bond's current market price. In practice, platforms and calculators solve for it iteratively, because there's no simple closed-form formula once a bond has more than one remaining coupon.
Using YTM to compare bonds
Because YTM standardizes price, coupon and time into one figure, it's the right number to compare across two different bonds, not the coupon rate and not price alone. Two bonds with identical coupons can have meaningfully different YTMs if one is trading closer to face value than the other.