Yield to put %

Yield to Put (YTP) is the annualized rate of return an investor can expect if a putable bond is purchased at its current market price and held until the nearest put date, assuming all coupon payments are received as scheduled and reinvested at the same yield.

Since a put option gives the bondholder the right to sell the bond back to the issuer at a specified date and price, YTP reflects the potential return if the investor exercises this option at the earliest opportunity.

The formula is:

Bond Price = Σ (CouponPayment ÷ (1 + Yield ÷ PaymentsPerYear) ^ Period) + (PutPrice ÷ (1 + Yield ÷ PaymentsPerYear) ^ PutPeriods)

Key terms:

• BondPrice – current market price of the bond.
• CouponPayment – payment received each period (FaceValue × CouponRate ÷ PaymentsPerYear).
• Yield – yield to put (annualized rate of return).
• PaymentsPerYear – number of coupon payments per year (e.g., 1, 2, or 4).
• Period – the number of the current coupon period (1, 2, 3 …).
• PutPeriods – number of periods until the nearest put date.
• PutPrice – price at which the bondholder can sell the bond back to the issuer on the put date (may differ from FaceValue).

For putable bonds, YTP is calculated using the earliest available put date. This provides investors with a conservative measure of potential return, as it reflects the possibility of exiting the bond at the first put opportunity.