Yield to Worst (YTW)

Yield to worst is the lower of yield to maturity and yield to call (or, if there are multiple call dates or put options, the lowest of all possible yields). It is the return you should assume in the worst-case scenario. Professionals always quote YTW for callable bonds.

Key takeaways

• YTW is the minimum yield you can expect across all possible outcomes—holding to maturity, being called, or early exercise of other options
• For a bond trading above par, YTW is usually yield to call (the issuer will call if it becomes profitable)
• For a bond trading below par, YTW is usually yield to maturity (the issuer has no incentive to call)
• YTW is the single number to use when comparing callable bonds, because it prevents you from overestimating your return
• If a bond has multiple call dates or puts, YTW accounts for all of them

The conservative principle

YTW is based on a simple principle: assume the worst case. When comparing two bonds, the investor should know the minimum return they can count on. YTW delivers that.

Consider two 10-year bonds from the same issuer:

Bond A (non-callable):

• Coupon: 4%
• Price: par (100)
• YTM: 4%
• YTW: 4%

Bond B (callable at par after 5 years):

• Coupon: 4.5%
• Price: par (100)
• YTM: 4.5%
• YTC: 3.5% (if called in 5 years)
• YTW: 3.5%

If you compare only YTM, Bond B looks better (4.5% vs 4%). But if you compare YTW, Bond B looks worse (3.5% vs 4%). If rates fall sharply, Bond B will be called, and you will earn only 3.5%, less than Bond A. YTW forces you to confront this risk.

YTW = min(YTM, YTC)

For a simple callable bond with one call date, the formula is:

YTW = minimum(YTM, YTC)

If YTM is 4.5% and YTC is 3.5%, then YTW is 3.5%.

When would YTM be lower than YTC? This is rare but can happen for a bond trading at a large discount. If the bond falls in price after you buy it, the YTM (to maturity, far away) might be lower than the YTC (to a call date sooner) if the coupon is very low. In practice, YTC is lower more often, especially for premium bonds.

Multiple call dates

Some bonds can be called on multiple dates, with the call price potentially changing. For example:

• Callable at par on June 15, 2026
• Callable at 101 on June 15, 2027
• Callable at 102 on June 15, 2028
• Maturity: June 15, 2030

You would calculate the yield for each scenario:

• Yield to June 15, 2026 call at par
• Yield to June 15, 2027 call at 101
• Yield to June 15, 2028 call at 102
• Yield to June 15, 2030 maturity

Then YTW = the minimum of all four yields.

The issuer will call on the date that is most favorable to the issuer (worst to you), which is usually the earliest date when the call is in-the-money. Your calculation of YTW must account for all dates to find the true floor.

Put options and YTW

Some bonds have put options, giving the bondholder the right to sell the bond back to the issuer at a specified price and date. A put lowers your downside risk (if the bond's value falls, you can force the issuer to buy it back at the put price).

For a bond with a put option:

YTW = minimum(YTM, YTC, YTP)

Where YTP is the yield to put—the return if you exercise the put and sell the bond back to the issuer on the put date.

Usually YTP is higher than YTM (because you are giving up future coupons), so it does not change the YTW. But the put protects your downside, making the bond less risky.

When is YTW most important?

YTW matters most when interest rates are falling or are expected to fall. In a falling-rate environment, bond prices rise, and callable bonds are likely to be called. YTW is the relevant yield because YTC will likely be the outcome.

In a rising-rate environment, callable bonds are less likely to be called. Bond prices fall, the call becomes out-of-the-money, and YTM becomes the relevant yield. YTW and YTM converge.

For a floating-rate bond (where the coupon resets periodically), the call is almost never in-the-money because the coupon adjusts with rates. YTW ≈ YTM for floating rate bonds.

YTW in bond fund prospectuses

Bond fund prospectuses report the fund's average YTW, not average YTM, to be transparent about the return you can expect. A fund investing in callable bonds will have an average YTW lower than the average YTM. This is the professional standard.

For example, a "high-yield bond fund" might report:

• Average coupon: 5.5%
• Average YTM: 5.2%
• Average YTW: 4.8%

The YTW of 4.8% is lower because many of the fund's bonds are callable and in-the-money. If rates fall, the bonds will be called, and the fund's return will be closer to 4.8% than to 5.2%.

YTW and credit spreads

Credit spreads (the difference between a corporate bond's yield and a Treasury's yield) are often quoted as YTW, not YTM. A corporate bond trading at a YTM of 4.5% and a YTW of 4.0%, with a Treasury trading at 2.5%, has:

• YTM spread: 4.5% − 2.5% = 2.0% (200 basis points)
• YTW spread: 4.0% − 2.5% = 1.5% (150 basis points)

The YTW spread is lower because the call risk is factored in. If you are a credit analyst comparing corporate bonds, you compare YTW spreads, not YTM spreads, to account for embedded options.

YTW and duration

Duration is a measure of a bond's interest rate sensitivity, and it is usually calculated using YTM. But for callable bonds, duration calculated using YTW is more conservative and realistic. A callable bond's price does not rise as much as a non-callable bond's price when rates fall (because of the call cap), so the duration based on YTW is lower than the duration based on YTM.

Practical example: the 2020 issuance wave

In 2020, companies issued a huge volume of callable bonds with high coupons (5%, 6%, even 7%) because rates were near zero and investors were desperate for income. The YTM on these bonds looked attractive.

By mid-2021, rates began rising. Many of these bonds fell below par. The YTC is no longer relevant (the issuer will not call a bond trading below par). The YTW now equals the YTM, which is higher than it was at issue (because you are now buying the bond at a discount).

But investors who bought these bonds at par in 2020, expecting to earn the high coupon until maturity, faced a scenario they did not fully anticipate: rates would rise, the bond would fall below par (they take a loss), and the YTW would be dragged down by the capital loss. If they sell, they lock in a loss. If they hold, they recoup par at maturity but miss the opportunity to invest in higher-yielding bonds.

Understanding YTW in 2020 would have clarified this risk. The YTW was lower than the YTM because of the call risk, signaling that the high coupons might not be sustainable.

Computing YTW in a spreadsheet

Most spreadsheet functions (YIELD in Excel, etc.) compute YTM, not YTW. To compute YTW for a callable bond, you must:

1. Calculate YTM (time to maturity, price, coupon, par)
2. Calculate YTC for each call date
3. Find the minimum of all yields

For example:

Scenario	Date	Cash flow	Yield
YTC	June 2026	Call at par	3.5%
YTC	June 2027	Call at 101	3.8%
YTC	June 2028	Call at 102	4.0%
YTM	June 2030	Maturity at par	4.2%

YTW = minimum(3.5%, 3.8%, 4.0%, 4.2%) = 3.5%

Excel does not have a YTW function, so you must compute the scenarios and use MIN().

YTW and market conventions

In the U.S. bond market, callable corporates are quoted with YTW. Government bonds (Treasuries, Gilts, Bunds) are non-callable, so YTW = YTM for them. Municipal bonds sometimes have call provisions, and YTW should be quoted, but many investors focus on YTM and ignore the call risk.

In international markets, YTW is less common. European bonds often feature call provisions but are not always quoted with YTW. This is a source of confusion and can lead to investors overestimating returns.

The downside: YTW can be misleading

YTW assumes the worst case, which is conservative. But in some scenarios, the worst case never materializes. If rates never fall, a callable bond will never be called, and you will earn the YTM, not the YTW.

YTW is a benchmark for comparison, not a promise. It is the return you should budget for conservatively, but the actual return may be higher if the worst-case scenario does not occur.

YTW vs YTM for decision-making

If you are buying a bond for income (e.g., a retiree), you should use YTW. It tells you the minimum income you can expect.

If you are buying a bond for price appreciation (e.g., a trader betting on falling rates), you should focus on the upside (the YTM or price target) and the downside (the YTW), understanding the asymmetry.

If you are comparing bonds for a fund or portfolio, you should compare YTW to avoid optimistic bias and ensure you are making decisions on a conservative basis.

Conclusion: YTW is the professional standard

YTW is how bond professionals avoid overestimating returns and getting surprised by embedded options. For any bond with an embedded option—callable, putable, sinkable, or otherwise—YTW is the number to use. It is not the most optimistic return (that would be YTM), but it is the most defensible. When comparing callable bonds or building a bond portfolio, always compare YTW.

Decision tree

Related concepts

• Yield to Call (YTC)
• Yield to Maturity (YTM)

Next

YTW gives you a single number for comparison, but it assumes a specific path. When you want to understand the full probability-weighted return and the range of outcomes, you need to decompose a bond's yield into its components and understand how each element contributes to your return.