Fixed Income · Core
Yield to Worst
Yield to worst is the lowest yield among the plausible call, put, and maturity paths — the conservative quote on an embedded-option bond.
Definition
Compute YTM to each call/put/maturity date the issuer or holder can force, and take the minimum (from the holder’s view). To-call can be the worst if the bond is above the call price. To-maturity can be worst if it is a discount.
Why it matters
Callable corporates and munis mislead if you only quote YTM. YTW is what a decent OMS shows.
Case
A 6% coupon corporate trading at 108, callable in a year at 103. YTM looks 4%; YTC/YTW is much lower. You were paid a premium the issuer will take back.
How to read it
Always ask YTW and the date that produces it. Then decide if that exercise is actually likely (rates, refunding, tax).
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