Net Yield to Maturity of Bond Funds
About Yield to Maturity
Yield to maturity (YTM) refers to the rate of return anticipated on a bond if it is held until the maturity date. It can be interpreted as the expected annualised returns provided that the bond is held to maturity, the bond issuer does not default and the coupons are reinvested at the same rate. The computation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity.
As a fund invests in bonds of different maturities and yields, the yield from the fund will be the weighted average of the yields on different securities, weighted by the proportion of invested sum. This weighted yield gives an indication of the attractiveness of the underlying bonds invested by the fund. However, interest rate risks, currency risks, possible defaults and reinvestment risks would affect the returns of a bond fund. In addition, fund managers may not hold bonds to maturity. Therefore, investors should not interpret the weighted YTM of a bond fund as a forecast or projection of returns for the fund.
Read “Interpreting Yields for Bond Funds” to understand more about the difference in yield to maturity on a bond and yield to maturity on a bond fund.
About Yield to Call
Some bonds are callable. They can be redeemed prior to maturity date. When interest rates have fallen to a level lower than the coupon rate, the companies that issued those bonds would find it cheaper to pay lower prevailing interest rates. This is similar to the way that a homeowner might choose to refinance (call) a mortgage when interest rates decline. As a bond holder of a callable bond, you run the risk of having your bond called before maturity. In such cases, fund managers calculate the Yields to Call (YTC).
About Yield to Worst
Yield to Worst (YTW) represent the lower of YTM or YTC (as explained above). YTC can be the same as YTM but never higher. Schroder’s Global High Yield provides YTW figures as the fund invests significantly into bonds with callable features.
About Net Yield to Maturity
Net yield to maturity are estimates made by iFAST Financial Pte Ltd, by deducting the last reported expense ratio (according to the latest annual report available on our platform) from the weighted gross yields to maturity provided by various fund houses.
The net yield to maturity will be updated on a weekly basis. Investors should not interpret the net yield to maturity of a bond fund as a forecast or projected yield.
Disclaimer on using Yield to Maturity
YTM does not represent and should not be taken as the historical, expected or actual returns on investment in any mentioned bond funds. Further, it is not a forecast or projected yield and is not indicative of the future or likely performance for any bond funds. The YTM on a bond fund is not equivalent to and cannot be compared with the yield on bonds that are held to maturity.
This information is intended for reference only and does not constitute investment advice or a recommendation or an offer or solicitation, and is not the basis for any contract to purchase or sell any security or other instrument, or for the relevant fund manager or its affiliates to enter into or arrange any type of transaction as a consequence of any information contained.
All applications for investments must be made on the application form accompanying the prospectus, which can be obtained from the relevant fund manager or its approved distributors.
In the event that an investor chooses not to seek advice from a financial adviser, the investor should consider whether the unit trust(s) is suitable for him.
iFAST and/or its licensed financial adviser representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.