From the course: Applied Fixed Income

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Yield to worst

Yield to worst

From the course: Applied Fixed Income

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Yield to worst

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- [Instructor] Sometimes you'll hear the term yield-to-worst when a bond has multiple scheduled call dates and prices that investor could encounter. As the name implies, once all the yield-to-calls and yield-to-maturities have been calculated, the lowest or worst yield is posted as the yield-to-worst. For an example, a callable bond may have multiple possible call dates so as to provide a yield-to-call of, say, 0.9%, 1.1%, 1.2%, and a yield-to-maturity of 1.4%. Let's assume that the actual outcome after the call is exercised is a yield-to-worse of 0.9%. In this case, the investor may have been better off with a non-callable bond of similar maturity because it would've provided a higher yield over the investment period. Hence, when we compare callable bonds with each other or with non-callable bonds, we shouldn't just stop at looking at yield-to-maturity, but rather incorporate yield-to-call and yield-to-worst.

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