Yield to Call (YTC) is the return an investor earns on a callable bond if the issuer redeems (calls back) the bond before its maturity date.
Yield to Call (YTC) is an important metric for callable bonds, which are bonds that the issuer has the right to repay before maturity at a predetermined call price. YTC calculates the expected return assuming the bond is called on the earliest call date.
YTC includes:
Annual interest (coupon) payments until the call date
The bond’s current market price
The call price paid by the issuer
Time remaining until the call date
Investors use YTC to understand the worst-case or realistic return scenario, especially when interest rates are falling. In such situations, issuers are more likely to call bonds to refinance at lower rates, limiting the investor’s future interest income.
For callable bonds, investors typically compare Yield to Call (YTC) with Yield to Maturity (YTM) and focus on the lower of the two, as it represents the more conservative expected return.
"An investor buys a callable bond for ₹1,050 with a face value of ₹1,000. The bond pays ₹80 annually and can be called after 4 years at ₹1,000. The Yield to Call will calculate the return assuming the bond is redeemed after 4 years, not at maturity."