Yield to Maturity
Yield to maturity is the constant discount rate that sets the bond’s dirty price equal to its remaining cash flows if held to maturity and coupons are reinvested at that same rate.
Definition
Yield to Maturity refers to yield to maturity is the constant discount rate that sets the bond’s dirty price equal to its remaining cash flows if held to maturity and coupons are reinvested at that same rate. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Duration, curve, and carry decide whether a macro view survives into P&L. When yield to maturity is the constant discount rate that sets the bond’s dirty price equal to its remaining cash flows if held to maturity and coupons are reinvested at that same rate shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what yield to maturity is saying. If yield to maturity is the constant discount rate that sets the bond’s dirty price equal to its remaining cash flows if held to maturity and coupons are reinvested at that same rate moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Always state the tenor and roll-down assumption; parallel-shift shortcuts hide curve risk. Prefer a short written null hypothesis for Yield to Maturity: what would falsify the current reading in the next window?
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