Looking for a bond trading system - why not check out BondDesk's offering? Before you do, though, it pays to know a little bit about bonds. The first thing to note is that there are multifarious ways of calculating a bond's yield.
Wealthy investors of yore (the primary investors in the bond market) would look for bonds with high credit quality and high coupons.
Coupons were quoted as yield, nowadays referred to as "nominal yield". (Example of this calculation: if a bond has par value of $1000, and pays $32.50 per 6months, its nominal yield is 6.5%). As an active secondary market developed for bonds in the late 19th and early 20th centuries, investors with a more "trader" mindset started to look at other measures to assess investments. Now they are not looking for bonds with high coupon rate per se, but looking for opportunity to make capital gains. In particular, how do you distinguish between a bond with high coupon rate trading above par, and a bond with low coupon rate trading below par. You need some concept of IRR of the bond to allow comparison. It's all about finding ways to buy low and sell high.
YTM is the IRR of the bond's dirty price including all scheduled coupon and principal payments. Before computers, this was hard to calculate, so another metric known as current yield became popular, defined as: (sum of coupons payable each year) / clean price.
If a bond is trading at par, nominal yield, current yield and yield to maturity are equal.
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