It is the ratio of the annual interest (coupon) payment and the bond's price:
Annual interest payment Current price
[1][2] The current yield of a bond with a face value (F) of $100 and a coupon rate (r) of 5.00% that is selling at $95.00 (clean; not including accrued interest) (P) is calculated as follows.
It does not reflect the total return over the life of the bond, or the factors affecting total return, such as: The concept of current yield is closely related to other bond concepts, including yield to maturity (YTM), and coupon yield.
When a coupon-bearing bond sells at; For zero-coupon bonds selling at a discount, the coupon yield and current yield are zero, and the YTM is positive.