Current yield Calculated as annual income divided by current market price.
Spread to maturity The difference between the yield to maturity (YTM – the total annualised return anticipated on a bond if held until it matures) of a specific bond (often corporate) and a benchmark bond (usually government securities) with a similar maturity date. It represents the additional yield for taking on higher risk, such as credit risk or lower liquidity, compared to a risk-free benchmark.
Yield to maturity (YTM) Total annualised return anticipated on a bond if held until it matures, assuming all payments are made on time and reinvested at the same rate.
Option-adjusted spread (OAS) The yield spread (difference in yields between two bonds or securities) after accounting for the value of any other extra rights embedded in each bonds’ structure. It represents the compensation that investors might expect for credit or liquidity risk (ie. risk that the borrower might not repay, or any difficulties associated with buying or selling).
Collateralised Loan Obligation (CLO) A securitised portfolio of corporate leveraged loans rated below investment grade (a rating on a bond where the borrower is perceived as having a relatively low risk of defaulting on repayment). The underlying loan pool is financed through the issuance of bonds that are structured into tranches with differing risk profiles, where interest and principal payments are prioritised according to each tranche’s position in the capital structure.
Yield The level of income on a security over a set period, typically expressed as a percentage rate. For equities, a common measure is the dividend yield, which divides recent dividend payments for each share by the share price. For a bond, in its simplest form, this is calculated as the coupon payment divided by the current bond price.