Yield to Call (YTC) is the annualised return a bondholder earns if the issuer exercises a call option and redeems the bond before maturity at a pre-specified call price. For callable bonds it is the more realistic yield because issuers call when rates fall.
Worked INR example
HDFC Bank issues a 10-year perpetual AT-1 bond, coupon 8.5%, with a first call date in year 5 at par ₹10 lakh. You buy at ₹10.20 lakh. If HDFC calls in year 5: you receive 5 × ₹85,000 coupon + ₹10 lakh principal vs. ₹10.20 lakh outlay. YTC ≈ 8.07%, lower than the 8.5% coupon because of the ₹20,000 capital loss.
When to use
- Evaluating AT-1 / perpetual bank bonds — always quote yield-to-call, never yield-to-perpetuity
- Callable NCDs from NBFCs (Bajaj Finance, Shriram) — assume call on first call date
- Pricing US Treasury callable bonds and corporate callables
SEBI caveat
SEBI mandates that callable-bond factsheets disclose both YTM and YTC. The lower of the two (yield-to-worst) is the conservative number an advisor should quote. The 2020 Yes Bank AT-1 write-down reminded investors that "call" is at issuer discretion — never assumed.
Related terms: YTM, Credit Rating, Coupon Rate.