What does yield-to-worst indicate for a bondholder?

Yield-to-worst represents the lowest potential yield that a bondholder can receive on a bond if the bond is called or matures early. This measure is particularly important for bonds that have call provisions, as they can be redeemed by the issuer before maturity, typically when interest rates decline. The yield-to-worst accounts for all possible scenarios, including the possibility that the bond may be called at the earliest opportunity, thereby providing a conservative estimate of yield.

By calculating yield-to-worst, investors can understand the minimum yield they can expect assuming that the bond may not be held to maturity. This insight helps bondholders assess the risk of early redemption and make more informed investment decisions. While it is not limited solely to the minimum yield under all conditions, it focuses on the worst-case yield scenario based on the bond's structure, including calls and maturities. Thus, it serves as a critical indicator in evaluating the overall return potential in a less favorable situation.