Glossary
YTW (Yield to Worst)
Yield to Worst (YTW) is the lowest possible yield an investor can earn on a bond without the issuer defaulting, assuming the bond is called or repaid early. It helps assess the worst-case return scenario when a bond has call or put provisions.
How is YTW calculated?
YTW is calculated by determining the yield of all possible call or maturity dates and selecting the lowest one. It accounts for early redemption risk.
Why is YTW important?
It shows investors the minimum return they could earn, helping them make more conservative and risk-aware investment decisions—especially with callable bonds.
What’s the difference between YTW and YTM?
YTM (Yield to Maturity) assumes the bond is held to maturity, while YTW assumes it could be called earlier, providing a more cautious estimate of return.
Is YTW relevant for all bonds?
YTW is most relevant for bonds with features like call options, put options, or sinking funds that allow early repayment.
When should investors pay close attention to YTW?
When interest rates are falling or when investing in callable bonds, since issuers are more likely to redeem bonds early under favorable conditions.
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