Glossary · Rates & Instruments
Yield to Maturity
The total return an investor would earn on a bond if held until its maturity date, accounting for all coupon payments and the difference between the purchase price and face value. The most comprehensive measure of a bond's return.
01—What is Yield to Maturity?
The definition — and what it means in practice.
Yield to Maturity (YTM) is the total return an investor would earn on a bond if it is held until its maturity date. It combines every coupon payment you receive over the life of the bond and the capital gain or loss between your purchase price and the bond’s face value at maturity. Because it includes both income and price effects, YTM is often treated as the most comprehensive single measure of a bond’s return.
YTM matters because it lets you compare bonds with different coupon rates, prices (trading at a premium or discount), and remaining time to maturity on a like‑for‑like basis. It also highlights a key reality: the return you actually earn depends on holding to maturity and being able to reinvest coupons at similar rates. If you sell before maturity, or rates move sharply, your realised return can differ from the quoted YTM.
If you pay Rs 950 for a bond that repays Rs 1,000 at maturity and also pays coupons, YTM is the single annual return that matches all those cash flows.
- YTM estimates a bond’s total return if you hold it until the maturity date.
- It includes coupon income plus any gain or loss versus the bond’s face value.
- Useful for comparing bonds with different coupons, prices, and maturities.
- Quoted YTM assumes coupons are reinvested and the bond is held to maturity.
- If you sell early, your return may be higher or lower than the YTM.
02—How yield to maturity works on the PSX
The Pakistan-specific rules, conventions, and numbers.
On the Pakistan Stock Exchange (PSX), investors may come across YTM when comparing fixed-income choices such as government securities (Treasury Bills and Pakistan Investment Bonds) and other bond-like instruments. The quoted YTM helps standardise comparison across instruments that pay different coupon rates or trade at different prices relative to face value. Even when two securities show similar “yield”, their YTMs can differ because maturity and price matter.
YTM is also commonly discussed alongside KIBOR (Karachi Interbank Offered Rate), which is published each business day under State Bank of Pakistan oversight. Market yields move as interest-rate expectations change, which can affect bond prices and therefore YTM. In practice, a PSX investor may use YTM as a cross-check when assessing whether a bond is priced rich or cheap relative to alternatives, while remembering that transaction costs and liquidity can affect outcomes.
03—Common misconceptions
Where investors most often get this wrong.
YTM is the same as the coupon rate.
Coupon rate is calculated on face value and stays fixed, while YTM depends on the price you pay and the time left to maturity, as well as coupons.
If YTM is quoted, my return is guaranteed.
YTM is an estimate based on holding to maturity and reinvesting coupons. Selling before maturity, default risk, or reinvestment at different rates can change realised returns.
Two bonds with the same yield will earn the same return.
“Yield” can mean different measures (such as current yield). YTM is designed to be comparable, but timing of cash flows and assumptions still matter.
04—Using yield to maturity on BSL
Where this term shows up across the platform — with live data.
- Learn core fixed-income terms in the glossary.
- Compare listed instruments and market pages via the market section.
- Browse related equity income metrics using highest dividend yield.
- Track key listed benchmarks through the KSE-100 page.
05—Frequently asked questions
What investors ask about yield to maturity on the PSX.
Frequently Asked Questions
Yield to Maturity is the annualised total return you would earn on a bond if you hold it until it matures, including all coupon payments and any difference between your purchase price and face value.
No. YTM is based on holding the bond until maturity. If you sell earlier, your realised return depends on the selling price you receive, how long you held it, and the coupons collected during that period.
Current yield typically looks only at annual coupon income relative to the bond’s current price. YTM includes coupon income plus the price movement between today’s price and the face value repaid at maturity.
Because YTM depends on the bond’s market price and the time left to maturity. When prices move up or down, the implied total return for a new buyer changes even though the coupon rate stays fixed.
Yes. Standard YTM calculation assumes coupons received are reinvested at a rate consistent with the YTM. If you reinvest at a different rate, your actual return can differ.
06—Related terms
Keep building the picture.
A fixed-income instrument representing a loan made by an investor to a borrower, typically a government or corporation. The borrower pays periodic interest and repays the principal at maturity.
The income generated by an investment over a period, expressed as a percentage of the investment's cost or current market value. Dividend yield and bond yield are the most commonly referenced forms.
The annual income from a security divided by its current market price, expressed as a percentage. Useful for comparing income return across different fixed-income or dividend-paying securities.
The annual interest rate payable on a bond, expressed as a percentage of its face value. A bond with a face value of PKR 1,000 and a 10% coupon rate pays PKR 100 in interest per year.
The nominal value of a share as stated in a company's charter. In Pakistan, most listed companies have a face value of PKR 10 per share, though this varies. For bonds, the face value is the amount repaid at maturity.
A graphical representation of the yields of government bonds of the same credit quality but different maturities. An upward-sloping curve reflects normal market conditions; an inverted yield curve is often interpreted as a signal of economic slowdown.
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