A bond has three numbers that all get called its "return", and they rarely agree. Knowing which is which separates comparing bonds properly from being misled by the largest print on the page.
Coupon rate: what the bond pays
The coupon rate is fixed the day the bond is issued and does not change. It is the annual interest as a percentage of face value.
A ₹1,00,000 bond with a 9% coupon pays ₹9,000 a year, whatever you paid for it, wherever its price goes. Buy it for ₹80,000 and it still pays ₹9,000. Buy it for ₹1,20,000 and it still pays ₹9,000.
That last point is why the coupon rate alone cannot be your return. It tells you the rupee income. It says nothing about the price you paid to get it, or about the ₹1,00,000 you will receive at maturity that may be more or less than you paid.
Current yield: income against price paid
Current yield fixes the first problem. It divides the annual coupon income by the price you actually paid.
Current yield = annual coupon ÷ price paid
Buy that 9% bond for ₹80,000 and the current yield is ₹9,000 ÷ ₹80,000, which is 11.25%. Buy it for ₹1,20,000 and the current yield is 7.5%.
This is a real improvement, because it reflects your entry price. But it still ignores something large. At maturity you receive the ₹1,00,000 face value. Pay ₹80,000 and that is a ₹20,000 gain current yield does not count. Pay ₹1,20,000 and that is a ₹20,000 loss it does not count. So current yield overstates the return on a bond bought at a premium and understates it on one bought at a discount.
Yield to maturity: the whole picture
Yield to maturity, or YTM, accounts for everything. Every coupon, the exact timing of each one, and the gain or loss when the face value is repaid. Formally it is the single discount rate that makes the present value of all the bond's remaining cashflows equal to its price. Informally, it is the annualised return you earn if you buy at today's price, hold to maturity, and the issuer pays in full.
For the 9% bond bought at ₹80,000 with five years to maturity, YTM works out to roughly 14%. That is well above the 9% coupon and the 11.25% current yield, because the ₹20,000 pull-to-par gain is now included and spread over the remaining life.
YTM is the number to compare bonds on. Two bonds with identical 9% coupons can carry completely different YTMs depending on price and remaining term, and the YTM is what tells you which is the better deal. The bond yield calculator computes all three figures for a specific bond so you can see how far apart they sit.
A worked comparison
| Bond A | Bond B | |
|---|---|---|
| Face value | ₹1,00,000 | ₹1,00,000 |
| Coupon | 9% | 9% |
| Years to maturity | 5 | 5 |
| Price | ₹1,00,000 | ₹92,000 |
| Coupon rate | 9% | 9% |
| Current yield | 9% | 9.78% |
| Yield to maturity | 9% | 11.0% |
Same issuer, same coupon, same maturity. The coupon rate says they are identical. The YTM says Bond B returns two percentage points more a year, because it trades at a discount that becomes extra return as it pulls back to face value.
What YTM quietly assumes
YTM is a clean number that hides three assumptions:
- You hold to maturity. Sell early and your realised return depends on the price that day, which depends on where rates and credit spreads have moved.
- Every coupon is reinvested at the same yield. In practice you reinvest each coupon at whatever rates exist when it arrives. In a falling-rate world you end up below the advertised YTM even holding to maturity.
- The issuer pays. YTM is a promised return, not an expected one. A bond yielding 15% is not a better version of one yielding 9%. It is a bond the market thinks is far more likely to default. Always read the yield next to the credit rating.
Why the same bond shows different yields on different sites
Yield conventions vary. A yield can compound annually or at the coupon frequency, use the clean price or the dirty price, and apply a 30/360 or actual/actual day count. Each choice shifts the answer by a few basis points. When a yield here differs from one elsewhere, check both are computed on the same basis before deciding one is wrong.
The takeaway
The coupon rate is the bond's label. Current yield corrects for your entry price. Yield to maturity is the only one that captures the full return, and it is the number to use whenever you compare one bond against another.