In bond trading, what does the term "yield to maturity" represent?

Yield to maturity (YTM) is a critical concept in bond trading, as it represents the total expected return on a bond if it is held until it matures. This measure takes into account not only the bond's current market price but also all future coupon payments and the principal repayment at maturity. Essentially, it reflects the internal rate of return (IRR) on the bond, assuming that all payments are made as scheduled and that the bond is held without sale or default.

YTM is particularly important for investors as it allows them to compare the potential returns of different bonds, which may have varying coupon rates, maturity dates, and prices. The calculation of YTM incorporates both the income earned from the bond and any capital gains or losses that may occur if the bond is purchased at a price different from its face value.

In contrast, the other options describe aspects of bond characteristics but do not accurately encapsulate the comprehensive nature of yield to maturity. For example, one option discusses interest rates associated with coupon payments but does not address the bond's overall expected return if held to maturity. Therefore, the designation of yield to maturity as the rate of return expected if the bond is held until maturity precisely captures its essence and significance in bond trading.