Which yield is most relevant when a bond can be redeemed before its maturity date?

When a bond has the option to be redeemed before its maturity date, the yield that reflects this scenario is the yield to call (YTC). YTC calculates the return an investor would receive if the bond is called at the earliest opportunity, taking into account the call price, coupon payments, and the time remaining until the call date. This yield is particularly important for callable bonds, where the issuer has the right to redeem the bonds before the scheduled maturity, typically in order to take advantage of declining interest rates or favorable refinancing conditions.

In scenarios where callable bonds are present, understanding YTC helps investors assess the potential risk and return since the bond may not remain outstanding until maturity. This makes YTC the most relevant yield for evaluating callable bonds, as it directly addresses the specific situation of early redemption, unlike other yield measures which focus on different aspects of bond performance under standard conditions.