The current yield on a convertible is similar to the dividend yield on a share of stock. It is calculated by relating the bond’s coupon to its current convertible price (by comparison, the dividend yield is equal to the dividend per share divided by the current share price). For example, if the bond’s coupon is $50, whilst its current convertible price is $1,000, then its current yield is:
Current yield = bond’s coupon / current convertible price
Current yield= 50 / 1,000 = 5%
This implies that the current yield tends to change over the bond’s life in accordance with changes in the convertible price. For convertibles that is quoted on a dirty price basis (such as French convertibles), a notional clean price is sometimes used to calculate a current yield (this will make those bonds comparable to bonds that are quoted “clean”).
The current yield is also known as a running yield.
