Bond Yield Calculator
Work out the nominal, running and yield-to-maturity on a gilt or corporate bond bought above or below par, plus the total coupons and capital gain over the remaining life.
Estimate only. This is an information tool, not investment advice. Bond prices move with interest rates, and selling before maturity can produce a gain or loss. Corporate bonds carry credit risk: the issuer may default. The value of investments can fall as well as rise.
Enter the bond's price, coupon and term
The nominal, running and yield-to-maturity figures appear here as you type.
How bond yields are calculated
The nominal yield is just the coupon rate, the annual coupon as a percentage of face value, and never changes. The running yield divides that same annual coupon by the price you actually paid, so buying below par raises it and buying above par lowers it. Yield to maturity is the discount rate that makes the present value of every remaining coupon plus the redemption of face value equal the price you paid, which is why it is the only one of the three that captures the pull to par. It has no closed-form solution, so this calculator solves it numerically, including into negative territory for low-coupon bonds bought at a premium, where the capital loss at redemption outweighs the coupons received.
Three yields, three different questions
The nominal yield, also called the coupon yield, is the annual coupon as a percentage of face value. It is printed on the bond and never changes. A 4¼% gilt pays £4.25 a year per £100 nominal for its whole life, whatever happens to its price.
The running yield, or current yield, divides that same coupon by the price you actually paid. Buy a £100 bond for £95 and the £4.25 coupon is 4.474% on your money rather than 4.25%. This is the right measure if what you care about is the cash income the holding produces each year.
The yield to maturity is the complete answer. It is the annualised return if you hold to redemption, counting both the coupons and the difference between what you paid and the £100 you get back. On that same bond it is 5.405%, higher than either of the other two, because the £5 capital gain at redemption is part of the return and only YTM includes it.
Why bond prices move the opposite way to yields
A bond's coupon is fixed in cash terms. If newly issued bonds start paying 6% while yours pays 4%, nobody will buy yours at face value, so its price falls until the combination of its coupon and the discount delivers roughly 6% to a new buyer. Rates up, prices down. The relationship is mechanical rather than sentimental.
How far the price moves depends on how long the bond has left. A bond maturing next year barely moves, because the £100 redemption is nearly here. A thirty-year bond moves a great deal, because a below-market coupon has to be discounted for three decades. That sensitivity is measured by duration, and it is the main reason long-dated gilts fell so sharply when rates rose in 2022.
This is also why a bond fund can lose money while every bond it holds is paying on time. A fund is marked to market daily and is continually rolling holdings, so it has no fixed maturity date at which the price converges on par. An individual bond held to redemption returns its face value regardless of what happened to its price in between, provided the issuer does not default.
Gilts, corporate bonds and credit risk
Gilts are issued by the UK government and are treated as the benchmark for sterling risk-free borrowing. Corporate bonds pay more, and the extra yield is called the credit spread: it is compensation for the possibility that the issuer does not pay. A corporate bond yielding markedly more than a gilt of the same maturity is not a better deal, it is a different risk.
Yield to maturity assumes every remaining payment is made in full and on time. For a gilt that is a reasonable assumption. For a high-yield corporate bond it is precisely the assumption in question, which is why comparing the YTM of a junk bond with that of a gilt as though they were equivalent is the most common error in bond investing.
Index-linked gilts work differently again: both the coupon and the redemption value rise with RPI, so the quoted yield is a real yield, after inflation, rather than a nominal one. They are not directly comparable with conventional gilts on a headline yield figure.
The UK tax quirk worth knowing
Gilts are exempt from Capital Gains Tax. The coupon is taxable as savings income, but any gain between the price you paid and the £100 redemption is not taxed at all.
That combination makes low-coupon gilts trading well below par particularly attractive to higher and additional-rate taxpayers holding outside a tax wrapper: most of the return arrives as an untaxed capital gain rather than as taxable income. It is the reason a low-coupon gilt can look expensive on yield alone and still be the better after-tax holding.
Inside an ISA or a pension the distinction disappears, because neither the income nor the gain is taxed. Corporate bonds do not share the gilt CGT exemption, though qualifying corporate bonds have their own treatment. The general point is that a bond's headline yield is a pre-tax figure, and for gilts the after-tax picture can be materially different.
What yield to maturity assumes, and where it breaks
YTM assumes you hold to redemption and reinvest every coupon at the same yield. In practice coupons get reinvested at whatever rates exist when they arrive, so the realised return differs from the YTM unless rates happen to stay put. This is reinvestment risk, and it is why a zero-coupon bond, which has no coupons to reinvest, is the only bond whose YTM is guaranteed if held to maturity.
It also assumes no default and no early redemption. Many corporate bonds are callable, meaning the issuer can repay early, which they tend to do when rates have fallen and refinancing is cheaper, precisely when you would rather they did not. For those, yield to call matters as much as yield to maturity.
And it assumes you hold to the end. Sell early and you get the market price on that day, which depends on where rates have moved. If there is any chance you will need the money sooner, the YTM is not the return you should be planning around.
Worked example: a 4¼% gilt bought at £95
£100 nominal bought below par with five years to run, paying semi-annually as UK gilts do. These are the exact figures this calculator returns.
| Face value | £100.00 |
|---|---|
| Price paid | £95.00 |
| Coupon rate | 4.25% |
| Years to maturity | 5 years |
| Coupon payments | Twice a year |
| Each coupon payment | £2.13 |
| Nominal yield | 4.25% |
| Running yield | 4.474% |
| Yield to maturity | 5.405% |
| Total coupons remaining | £21.30 |
| Capital gain at redemption | £5.00 |
| Total return | £26.30 |
The three yields rise in order because the bond was bought at a discount: 4.25% is what the certificate pays, 4.474% is what that coupon is worth on £95, and 5.405% adds the £5 you receive back at redemption, annualised over the five years. Buy the same bond above par and the order reverses.
Frequently asked questions
- How do you calculate the yield on a bond?
- There are three figures. Nominal yield is the annual coupon divided by face value, which is simply the coupon rate. Running yield is the annual coupon divided by the price you paid. Yield to maturity is the discount rate that makes the present value of all remaining coupons plus the face value at redemption equal the price paid, so it is the only one that includes the capital gain or loss. YTM has no closed-form solution and must be solved numerically.
- What is the difference between running yield and yield to maturity?
- Running yield measures only the cash income: the coupon against what you paid. Yield to maturity adds the pull to par, the gain or loss between your purchase price and the face value you receive at redemption, annualised over the remaining life. On a bond bought below par the YTM is higher than the running yield; bought above par it is lower, and on a low-coupon bond at a large premium it can be negative.
- Why do bond prices fall when interest rates rise?
- A bond's coupon is fixed in cash terms. When new bonds are issued paying more, an existing bond paying less has to become cheaper before anyone will buy it, so that the coupon plus the discount delivers a competitive return. The longer the bond has left to run, the further the price must fall, which is why long-dated gilts are far more volatile than short-dated ones.
- Can a bond have a negative yield to maturity?
- Yes. If you pay well above face value for a bond with a small coupon, the capital loss at redemption can exceed everything you receive in coupons. A £100 bond with a 1% coupon and four years left, bought at £110, has a yield to maturity of about −1.42%. This is why a calculator that only searches for positive yields will silently report zero on exactly the bonds where the answer matters most.
- Are gilts taxed in the UK?
- The coupon is taxable as savings income, but gilts are exempt from Capital Gains Tax, so any gain between your purchase price and the £100 redemption is tax-free. That makes low-coupon gilts trading below par notably efficient for higher and additional-rate taxpayers holding outside a wrapper, since most of the return arrives as an untaxed capital gain. Inside an ISA or pension neither the income nor the gain is taxed anyway.
- What is the difference between a gilt and a corporate bond?
- Gilts are UK government debt and are the sterling benchmark for a safe borrower. Corporate bonds are issued by companies and pay a higher yield, the difference being the credit spread, which is compensation for the risk of default. Yield to maturity assumes every payment is made in full, which is a fair assumption for a gilt and the entire open question for a low-rated corporate bond.
- Why did my bond fund lose money when bonds are supposed to be safe?
- A single bond held to maturity returns its face value, whatever its price did along the way, unless the issuer defaults. A bond fund has no maturity date: it is valued daily at market prices and continually rolls its holdings, so when rates rise the fund's price falls and there is no redemption date at which it converges back to par. The two behave quite differently, which is a common surprise for first-time bond investors.
- What is a clean price?
- The clean price excludes accrued interest, the portion of the next coupon that has built up since the last payment date. It is the price normally quoted on retail platforms and the one this calculator uses. The dirty price adds the accrued interest and is what actually changes hands at settlement, so the cash you pay is slightly higher than the quoted price between coupon dates.
Also known as: bond yield calculator · yield to maturity calculator · gilt yield calculator · running yield calculator · current yield calculator · bond calculator UK
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