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Current Yield

A bond's current yield can be found by dividing the coupon or nominal by the current market price of the security. It is not an overly important yield to investors - as it is always changing and is most important if someone is pricing the bond to sell. If an investor is holding the security to maturity - then the current yield is not a big concern.

The term "current yield" refers to the combination of the stated coupon rate and the current price on the bond. If a bond has a nominal yield of 7% and the current price is $104 or $1040, if one bond is owned, the current yield would be 6.73% (7 divided by 104). The CY is not that important when evaluating a bond. The most important factors are the interest payments and the overall yield to maturity or call.

A debt that is priced above par (premium) will have a lower current yield vs. the nominal. A 7% corporate debenture priced at $102 will have a current of 6.86% ($70 divided by $1020). Discounted bonds will have a higher current yield than it's coupon rate.

Copyright American Investment Training, Inc. Bond Rate and Bond Yield Information and Training Service