What is Yield to Maturity (YTM)?

Yield to Maturity (YTM) measures the annual internal rate of return of a bond portfolio if all underlying bonds are held until maturity. Therefore, the YTM of the portfolio is calculated by taking a weighted average of the YTM of each of the underlying bonds. It's useful for comparing the expected returns between different (portfolios of) bonds on an equal basis, especially when the bonds have different maturities and coupon rates. YTM is not the portfolio’s guaranteed return, as the bond prices will fluctuate due to various factors, such as interest rate changes.