When investing in bonds, understanding their yields is crucial for assessing profitability and making informed financial decisions. Two primary measures of bond yield are Current Yield and Yield to Maturity (YTM). While both indicate return, they capture different aspects of a bond's performance.

Current Yield is a simple measure that shows the annual income a bond provides relative to its current market price. It's calculated by dividing the bond's annual coupon payment by its current market price. This metric is useful for understanding the immediate income generated by a bond, but it doesn't account for the bond's face value or the time until maturity.

Yield to Maturity (YTM) is a more comprehensive measure. It represents the total return anticipated on a bond if the bond is held until it matures. YTM takes into account the bond's current market price, its face value (par value), its coupon rate, and the time remaining until maturity. It essentially calculates the internal rate of return (IRR) of the bond's cash flows.

YTM is expressed as an annual rate. It assumes that all coupon payments are reinvested at the same YTM rate, which is a key assumption. If a bond is trading at a discount (below par value), its YTM will be higher than its coupon rate. Conversely, if a bond is trading at a premium (above par value), its YTM will be lower than its coupon rate.

For investors aiming to compare different bonds or assess the true profitability of a bond investment, YTM is the preferred metric. It provides a standardized way to evaluate bonds with different coupon rates, maturities, and prices. Understanding YTM helps in making strategic decisions about which bonds to buy, sell, or hold, especially in varying interest rate environments.