Yield to Worst: Definition and How to Find It
Yield to worst is the lowest yield an investor can receive on a callable bond across every possible call date and maturity. For a bond trading at a premium it is usually yield to call; for a bond trading at a discount it is yield to maturity.
Why firms quote it
Quoting the lowest possible return keeps the customer's expectation conservative and avoids overstating a callable bond's return. On the exam, the correct yield to quote on a callable premium bond is yield to worst.
How to find it
Use the yield see-saw. Premium callable bond: yield to call is lowest, so it is the yield to worst. Discount callable bond: yield to maturity is lowest, because the issuer is unlikely to call below par.
Frequently asked questions
What is Yield to Worst?
Yield to worst is the lowest yield an investor can receive on a callable bond across every possible call date and maturity. For a bond trading at a premium it is usually yield to call; for a bond trading at a discount it is yield to maturity.
How does Yield to Worst show up on the exam?
Premium bond means call risk: the issuer can redeem early at a lower price than the customer paid, so yield to call is the worst case.
Practice this concept
Sources
- FINRA Series 7 content outline (debt securities)
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