Current Yield is a financial ratio that shows the annual income (interest or dividend) earned from an investment as a percentage of its current market price.
Current Yield is mainly used for bonds and fixed-income securities to measure how much income an investor earns based on the current market price, not the face value. It focuses only on annual interest income and does not consider capital gains or losses that may occur if the bond is held until maturity.
This metric is especially useful when comparing bonds trading at different prices in the market. A bond purchased at a lower market price will have a higher current yield, while a bond trading at a premium will show a lower current yield, even if both have the same coupon rate.
However, current yield should not be confused with Yield to Maturity (YTM). While current yield gives a quick snapshot of income return, YTM provides a more complete picture by including total returns over the bond’s life.
"If a bond pays ₹90 as annual interest and is currently trading at ₹1,000 in the market, the current yield will be: Current Yield = (90 ÷ 1,000) × 100 = 9%"