The percentage annual rate of return (discounted) which is paid on a fixed-income security (such as a bond, note, gilt, etc) bought by an investor and kept until maturity. Put another way, it is the internal rate of return (IRR) that an investor would earn if he purchased the security at current market price. Despite the flaws embedded in IRR calculations (which yield-to-maturity or YTM likewise suffers from), YTM, as a yield measure, is superior to the flat yield, and perhaps the most precise measure of bond yield.

The calculation for YTM is based on a set of inputs, namely, the coupon rate, time to maturity, and market price. For simplicity’ sake, YTM calculation assumes that coupon interest paid over the security’s life will be rolled over (reinvested) at this yield, and accordingly implying a flat yield curve.