Current Yield

The simplest bond yield there is: cash income per dollar paid — the bond's version of a dividend yield. It answers one narrow question well: "what income does this price buy me right now?"

What it deliberately ignores is the pull to par: a bond bought at 90 will also drift up to 100 at maturity (a gain), and one bought at 110 will drift down (a loss). Current yield sees neither — which is exactly the gap between it and yield to maturity.

Take the annual coupon cash flow and divide by the capital committed at today's price:

It is the income component of the holding period return, annualized — HPR's $\frac{D}{P_0}$ term wearing a bond costume. The capital-gain component $(P_1 - P_0)/P_0$ is what it leaves out.

You're asked for the income return of a bond at today's price — or need the quick screen before a full YTM calculation.

Current yield ignores the redemption entirely: two bonds with the same coupon and price but different maturities show identical current yields despite very different true returns. It also ignores reinvestment and accrued interest. It is a screening number — YTM is the decision number.

Current yield is the oldest yield quote in finance — it's how consols and rentes were compared in 18th-century coffee-house markets, where "a 3% stock at 75" instantly meant 4% income. Before calculators, the pull-to-par adjustment was read from printed bond tables, so current yield served as the on-the-spot approximation for two centuries of bond trading.

Today it survives in bond fund factsheets and financial media ("the 10-year yields…") — and in exams, precisely because confusing it with YTM is such a reliable trap.