Money Lessons with Andrew Temte, PhD, CFA

Episode: Understanding Bond Yields: Measuring Your Return

Date: January 24, 2026

Episode Overview

In this concise and engaging episode, Dr. Andrew Temte unpacks the complex concept of bond yields, breaking down the various measures used to evaluate the real return on a bond investment. He methodically explains nominal yield, current yield, yield to maturity, and yield to call—clarifying why each is useful, how they differ, and their importance in making informed investment decisions. Through practical examples and accessible explanations, Andy illustrates the crucial relationships between bond prices and yields, empowering listeners to accurately compare bonds and better understand financial news.

Key Discussion Points & Insights

What is Yield? (01:12)

• Definition: Yield is the return on your investment from a bond, expressed as a percentage.
• Why Multiple Measures?: Bond prices fluctuate, while coupon payments are fixed. This disconnect means the stated coupon (nominal yield) may not match your real return; thus, several yield calculations are used.

Types of Bond Yields

1. Nominal Yield / Stated Rate (02:20)

• Definition: The printed coupon rate on the bond.
• Example: A 5% coupon bond pays $50 annually on a $1,000 face value.
• Key Point: Does not change regardless of market price.
  • “Nominal yield never changes, regardless of what happens to the bond’s market price.” (03:02)

2. Current Yield (03:34)

• Definition: Annual interest payment divided by the current market price.
• Example Calculations:
  • Bought at $1,000 (par): $50 / $1,000 = 5%
  • Bought at $926 (discount): $50 / $926 = 5.4%
  • Bought at $1,082 (premium): $50 / $1,082 = 4.6%
• Key Insight: Current yield reflects your actual investment but ignores changes at maturity.
  • “Current yield gives you a better picture than nominal yield because it reflects your actual investment, but it still misses something important. It ignores what happens at maturity.” (04:40)

3. Yield to Maturity (YTM) (05:01)

• Definition: The total annualized return if the bond is held to maturity, accounting for all interest payments, the purchase price, and any capital gain or loss at maturity.
• Discount Example: Bought at $926, receives $50/year, gets $1,000 at maturity (a $74 gain); YTM is 6% (matches the current market interest rate).
• Premium Example: Bought at $1,082, receives $50/year, gets $1,000 at maturity (an $82 loss); YTM is 4%.
• Key Quote:
  • “Yield to maturity tells you your total annualized return if you hold the bond until maturity.” (06:02)
• Clarification: Professionals use financial calculators for YTM, but the intuition is straightforward—it's your full expected return.

4. Yield to Call (YTC) (07:17)

• Definition: The annualized return if the bond is called early (applies to callable bonds where the issuer can pay back principal before maturity).
• Context: Firms call bonds to refinance if rates drop, especially those with high coupon rates.
• Key Insight: For premium bonds, YTC is typically lower than YTM because the time to earn high interest is cut short.
• Investor Tip: Focus on YTC for callable premium bonds as a conservative measure.
  • “When evaluating callable bonds trading at a premium, experienced investors often focus on yield to call rather than yield to maturity as a more conservative estimate of return.” (08:05)

Hierarchy of Yield Measures (08:47)

• At Par: Nominal Yield = Current Yield = Yield to Maturity
  • 5% coupon bond bought at $1,000: all yields are 5%.
• At a Discount (below face value): YTM > Current Yield > Nominal Yield
  • Earning coupon plus capital gain.
  • $926 bond example: 6% YTM > 5.4% Current > 5% Nominal.
• At a Premium (above face value): Nominal Yield > Current Yield > YTM
  • Earning coupon, but with a capital loss.
  • $1,082 bond example: 5% Nominal > 4.6% Current > 4% YTM.
• Key Quote:
  • “Understanding this hierarchy helps you quickly assess whether a bond’s price reflects a premium or a discount without doing calculations.” (09:41)

Real-World Application & Importance (10:04)

• Comparison: Always compare the same yield types between bonds—typically YTM for an accurate, apples-to-apples comparison.
• In Practice: Financial news reports and quotes usually reference YTM, e.g., “10-year treasury yields rose to 4.5%,” meaning the yield to maturity.
• Why It Matters: Coupon rates, term, call dates, and risk vary widely—knowing how yields work is key to smart bond investing.
  • “Understanding yield measures is a critical component of any financial literacy journey.” (10:46)

Notable Quotes & Memorable Moments

• “At its simplest, yield is your return on investment expressed as a percentage. But here’s what makes bonds interesting: There are several ways to calculate yield, and each one tells you something different about your investment.” — Andy Temte (01:19)
• “Yield to maturity tells you your total annualized return if you hold the bond until maturity.” — Andy Temte (06:02)
• “Understanding this hierarchy helps you quickly assess whether a bond's price reflects a premium or a discount without doing calculations.” — Andy Temte (09:41)
• “When you see in the media that 10-year treasury yields rose to 4.5%, that’s yield to maturity, the total return investors demand for lending to the government for a decade.” — Andy Temte (11:16)

Key Timestamps

• 01:12 – What is yield? Origin of confusion in bonds
• 02:20 – Nominal yield explained
• 03:34 – Understanding current yield (with calculations)
• 05:01 – Yield to maturity: what it is, why it matters
• 07:17 – Yield to call and callable bonds
• 08:47 – The hierarchy: how yields compare at par, discount, and premium
• 10:04 – Why yield matters in practice, news, and financial comparisons
• 11:16 – Media references to yield and preview of next episode

Tone & Language

Andy Temte’s tone is clear, approachable, and warmly authoritative. Complex concepts are translated into straightforward analogies and real-world applications, making the discussion inviting for listeners at all financial knowledge levels.

Next Week’s Teaser

Andy previews a look at different types of bonds—treasuries, corporates, municipals, and high-yield—exploring why yields differ with risk profiles.

Summary prepared for “Money Lessons with Andrew Temte, PhD, CFA”
Episode: Understanding Bond Yields: Measuring Your Return (Jan 24, 2026)