Illustrative stock photo: Pexels · Free-use licence Legally Insightful · Australian explainer Quick answer: A bond’s coupon rate describes its contractual interest against face value. Yield to maturity is an estimate of the annualised return from the bond’s remaining payments and maturity amount at today’s price, subject to assumptions including payment as promised. Why the advertised coupon is not your return A 5% coupon on $10,000 face value is $500 each year if paid annually. Buying that bond for $10,600 does not create $530 of annual interest; the annual coupon remains $500. You also face a difference between the purchase price and maturity amount. Likewise, buying below face value can increase the yield because the investor receives the coupon plus a potential uplift to face value at maturity. Brokerage, accrued interest, taxes and the timing of cash flows can change the investor’s actual net outcome. Yield to maturity uses all promised cash flows Yield to maturity is the...