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The lowest potential yield that can be received on a bond without the issuer actually defaulting. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including ppayment, call or sinking fund, are used by the issuer. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.
|||Yield to worst is calculated on all possible call dates. It is assumed that ppayment occurs if the bond has call or put provisions and the issuer can offer a lower coupon rate based on current market rates. If market rates are higher than the current yield of a bond, the yield to worst calculation will assume no ppayments are made, and yield to worst will equal the yield to maturity. The assumption is made that pvailing rates are static when making the calculation. The yield to worst will be the lowest of yield to maturity or yield to call (if the bond has ppayment provisions); yield to worst may be the same as yield to maturity but never higher. |
