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'For example, when working out the redemption yield, the investor must make assumptions as to the future level of inflation.
The main number which is used to assess the value of the bond is the gross redemption yield.
The yield to maturity (or redemption yield) is the most frequently used measure of the return from holding a bond.
The net redemption yield is lower than the gross redemption yield.
The yield is usually quoted without making any allowance for tax paid by the investor on the return, and is then known as "gross redemption yield".
Calculated gross redemption yields (real) on index-linked bonds vary just as do yields (in nominal terms) on conventional bonds.
That relationship is the definition of the redemption yield on the bond, which is likely to be close to the current market interest rate for other bonds with similar characteristics.
The bonds have a call at any time in whole or part at a redemption yield based on the then current U.S. Treasury, or the make-whole amount.
The market price of a bond is the present value of all expected future interest and principal payments of the bond discounted at the bond's redemption yield, or rate of return.
In general, low-coupon bonds will have a lower gross redemption yield because they will be attractive to tax-paying investors concerned to maximize their net redemption yield after payment of taxes.
When this loss is allowed for and expressed in terms of an annual (negative) return over the holding period, it is possible to derive a redemption yield comprised of both running yield minus annualised capital loss.
The market price of a tradeable bond will be influenced amongst other things by the amounts, currency and timing of the interest payments and capital repayment due, the quality of the bond, and the available redemption yield of other comparable bonds which can be traded in the markets.
In the financial press the term maturity is sometimes used as shorthand for the securities themselves, for instance In the market today, the yields on 10 year maturities increased means that the prices of bonds due to mature in 10 years time fell, and thus the redemption yield on those bonds increased.
This is defined such that if all future interest and principal repayments are discounted back to the present, at an interest rate equal to the gross redemption yield (gross means pre-tax), then the discounted value is equal to the current market price of the bond (or the initial issue price if the bond is just being launched).
