The yield to worst is a calculation that shows the lowest yield possible for a bond, assuming the bond doesn’t default entirely. Often, these types of bonds have a higher yield to account for the potential that they will be called in early, so they can still make sense as an investment if you assume the yield to worst case scenario.
What type of bonds are affected?
Bonds that should have the yield to worst calculated are bonds that are callable, meaning they have a provision written into the agreement that allows the issuer to pay them back early. When they’re paid back early, you lose out on a certain amount of interest payments, so it’s important to read the fine print very carefully.