Current yield

Current yield is a financial metric used to calculate the annual income generated by a bond as a percentage of its current market price. It is calculated by dividing the bond's annual interest payment (coupon rate) by its current market price and then multiplying by 100 to express the result as a percentage.

Current yield = Coupon rate ÷ Current close * 100

• Coupon rate: The coupon rate is the fixed annual interest rate that the issuer of the bond promises to pay to the bondholder. It is expressed as a percentage of the bond's face value.
• Current close: The current close refers to the current market price at which the bond is trading. It represents the actual price that investors are willing to pay for the bond in the secondary market. 

For example, if a bond has a face value of $1,000, a coupon rate of 5%, and is currently trading at $900, the current yield would be calculated as follows: $50 (5% of $1,000) ÷ $900 * 100 = 5.56%. This means that an investor purchasing the bond at $900 would receive a return of 5.56% based on the current price.

Current yield helps assess the income potential of a bond relative to its current market price. Since bond prices can change due to market conditions, current yield adjusts accordingly. Investors may buy bonds at a discount (yielding a higher current yield) or a premium (yielding a lower current yield).

Unlike the yield to maturity (YTM), which considers the entire life of the bond until maturity, current yield focuses solely on the annual income (interest or dividends) relative to the bond's current market price.

However, it's important to note that the current yield does not take into account any potential capital gains or losses if the bond is sold before maturity. Investors should consider other factors such as yield to maturity and total return when evaluating bond investments.