Current Yield and Running Yield
A quick, rough measure of a bond's return that just divides its annual coupon by its current market price, ignoring maturity and price change entirely.
Current yield, also called running yield, is the simplest yield number attached to a bond: the annual coupon payment divided by the bond's current market price. A bond paying a $5 annual coupon and trading at $95 has a current yield of 5 / 95 ≈ 5.26%. It says nothing about how long the bond has left to run or what happens to the price by maturity, which is why it differs from yield to maturity: a bond trading below par (like this one) has a current yield lower than its yield to maturity, because YTM also captures the built-in gain of being repaid $100 at maturity for a $95 price today.
Traders still quote current yield because it is fast to compute in your head and gives an at-a-glance sense of income return, but it is a poor substitute for yield to maturity when comparing bonds of different maturities or prices, since it ignores the pull-to-par effect entirely.
Current yield = annual coupon ÷ current price, quick and intuitive, but unlike yield to maturity it ignores the capital gain or loss from a bond's price converging to par by maturity, so it systematically understates return on a discount bond and overstates it on a premium bond.
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Further reading
- Fabozzi, Bond Markets, Analysis, and Strategies