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)

Transcript

A (0:00)

Foreign. Hi, I'm Andy Tempte and welcome to Money Lessons. Join me every Saturday morning for bite sized lessons that are designed to improve financial literacy around the world. Today is January 24, 2026. Last week we explored bond mechanics, face value, coupon rate, and maturity date. We discovered the crucial inverse relationship between interest rates and bond when rates rise, bond prices fall, and vice versa. We watched our example $1,000 face value bond with a 5% coupon drop to $926 in the open market when market rates climbed to 6%. But I used the word yield several times without fully explaining it. Today we're going to unpack this essential concept. Understanding yield and the different ways to measure it is fundamental to comparing bonds and evaluating your true return. So what is yield? 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. The confusion arises because bond prices fluctuate while coupon payments remain fixed. When you buy a bond at a price different from its face value, the stated coupon rate no longer reflects your actual return. This is the primary reason why we need multiple yield measures. So let's start with nominal yield, or also known as the stated rate. Nominal yield is simply the coupon rate, the interest rate printed on the bond. Our example bond with a 5% coupon has a nominal yield of 5%. It will pay $50 annually on $1,000 face value, period. Nominal yield never changes, regardless of what happens to the bond's market price. If you buy that bond for $900 or $1100, the nominal yield remains 5%. The still pays $50 per year based on its $1,000 face value. This is why nominal yield alone doesn't tell you much about your actual return. It ignores what you paid for the bond. Now let's talk about current yield. Current yield accounts for the price you paid for the bond in the open market. The calculation is straightforward. Divide the annual interest payment by the current market price using our 5% coupon bond paying $50 annually. If you paid $1,000 or par value, your current yield is 5% or $50 coupon payment divided by $1,000. If you paid $926 or the discount that we talked about last week, your current yield is 5.4% or the $50 coupon divided by $926. Alternatively, if you paid $1,082 or the premium that we talked about last week, your Current yield is 4.6% or $50 divided by 1,082. 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. So let's talk about the most common yield measure, which is yield to maturity, or ytm, also known as total return. This is the most complete measure of return. It accounts for three the interest payments you'll receive, the price you paid for the bond, and the gain or loss when the bond matures at face value. Consider our bond purchased at a $74 discount, meaning you paid $926. For a $1,000 face value bond, you'll receive $50 annually in interest payments, but you'll also receive $1,000 at maturity, which is a $74 gain over your purchase price. Yield to maturity captures both the interest income and this capital gain, expressing them as return. For our discounted bond, the yield to maturity is 6%, the market interest rate we used to calculate the $926 price in last week's lesson. Now the math involves present value calculations that professionals handle with computers and financial calculators, but the concept is intuitive. Yield to maturity tells you your your total annualized return if you hold the bond until maturity. The reverse applies to premium bonds. If you paid 1,082 for our hypothetical bond, you'll receive $50 annually but lose $82 at maturity. When you receive only $1,000 in face value, the yield to maturity of 4% reflects this capital loss alongside your interest income. Now, some bonds are callable, meaning that the issuer can repay the principal before the maturity date. Companies typically call bonds when interest rates fall. They can retire expensive old debt with high coupon rates and issue new bonds with lower coupon rates, reducing their interest expense. Yield to Call, or YTC calculates your return assuming that the bond is called at the earliest possible date. For premium bonds especially, yield to call is often lower than yield to maturity because you'll receive your principal back sooner than you expected, giving less time to collect those attractive above market interest payments. 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. Now let's talk about the hierarchy between these yield measures. This is how everything ties together. The relationships between nominal yield, current yield, and yield to maturity follow a predictable pattern based on whether you bought at par, premium or at a discount at par, meaning that you paid face value. All three yields are equal to each other. Your 5% coupon bond bought for $1,000 has a nominal yield, current yield and yield to maturity, all of 5% at a discount, meaning you paid less than face value. Yield to maturity is greater than current yield, which is greater than normal nominal yield. You're earning the stated interest plus a capital gain at maturity. So for our $926 bond, yield to maturity of 6% is greater than current yield of 5.4% is greater than the nominal yield of 5%. At a premium where you paid more than face value, the relationship reverses. Nominal yield is greater than current yield is greater than yield to maturity. You're earning the stated interest but facing a capital loss at maturity. For our $1,082 bond, nominal yield is 5%, current yield is 4.6% and yield to maturity is 4%. Understanding this hierarchy helps you quickly assess whether a bond's price reflects a premium or a discount without doing calculations. So why does this matter? When comparing bonds, you must compare the right yields to get an apples to apples comparison. Since coupon term to maturity, call dates, default risk and other factors can vary wildly between bonds, understanding yield measures is a critical component of any financial literacy journey. The financial news and bond quotes typically report yield to maturity because it's the most comprehensive measure. 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. Next week we'll explore the landscape of bond types, treasuries, corporates, municipals and high yield bonds and we'll discover why different bonds offer different yields based on their risk profiles. So until next week, I wish you grace, dignity and compassion. My name is Andy Tempte. This is Money Lessons. You can find the show on all the major streaming services as well as out on YouTube. Please like subscribe, rate and most importantly, share this public good with your friends, your family members, your colleagues and maybe a neighbor. The show is produced by Nicholas Tempte. We'll see you next week on Money Lessons. Sam.