Current yield shows an asset’s annual income as a percentage of its current price.
For a bond, current yield is usually calculated by dividing the annual coupon payment by the bond’s current market price. A bond paying $60 a year and trading at $1,000 has a 6% current yield; if its price falls to $750, the current yield becomes 8%.
Current yield is useful for comparing present income, but it does not measure the complete return from owning a bond. It ignores changes in the bond’s price, the repayment of face value at maturity, and the timing of cash flows. Yield to maturity is a broader measure for a bond held to maturity.
Current yield can also be discussed for dividend-paying securities, but terminology varies by asset class. Investors should identify which income stream and price are being used.