The 'Yield' displayed in the trading platform is the 'Yield to Worst (YTW)' which is the lesser of the Yield to Maturity or the Yield to Call (the next call date of the bond, if applicable).
The YTW ('Yield') differs from the current yield (coupon/market price ) and notional yield (coupon/face value), as it accounts for all future cash flows which therefore allows for comparing bonds of different coupons and maturities on a standardized level. It is essentially the Internal Rate of Return (IRR) of a bond investment, and assumes the following elements:
- The bond is purchased at the currently displayed price.
- The bond is held to maturity (or the next call date, if applicable).
- Days remaining is based on the settlement date of the trade.
- The coupon payments are reinvested at the same rate of return (yield).
Calculating the YTW requires a financial calculator given that it is an iterative process assuming coupon reinvestment. There are many yield/price calculators available online from various third parties, however, it is important to note that the day count method and precision of these calculators may not always align with that of the actual bond – and therefore may result in slight differences compared to what you see displayed in the trading platforms/scanners.
Also note that the Yields displayed in the trading platforms/scanner do not assume any commissions, however, the yield reported on your trade confirmations will include the commissions paid on the trade.
Customers can see the YTW relative to the Bid, Ask, Last and/or Mark price from within TWS by inputting this value onto their Portfolio or Watchlists by right clicking on an existing column header then selecting Insert > Bonds > Yield.