Redemption yield
When investors buy different securities, they want to be able to compare expected annual returns. For bonds this is the 'redemption yield' or 'yield to maturity'.
When investors buy different securities, they want to be able to compare expected annual returns. For bonds this is the 'redemption yield' or 'yield to maturity'. It reflects the annual income and expected capital gain or loss from holding the bond.
Say you hold a 6% corporate bond priced at £95, due to be redeemed in four years' time. The income, or 'flat', yield is 6/95 x 100, or 6.3%. This is sometimes flagged in newspapers as 'FY'. But the published gross (pre-tax) redemption yield, or 'GRY', will be higher, say, 7.6%.
This reflects the annual income from the bond and the fact that if you pay £95 for the bond now you'll make a small capital gain on top between now and redemption at £100 in four years' time.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.
-
5 alternatives to Reeves’ inheritance tax raid on rural Britain as families face ‘splitting up or selling’ farms
Inheritance tax limits are now so low they attack small working family farms rather than just going after tax loopholes, one Cotswolds farmer has said
-
High earners at risk of £65k retirement shock
High earners could face some of the biggest pension shortfalls when they retire, as the cost of maintaining an expensive lifestyle could erode their retirement savings