Ss12. Reading 35. BB 6.
Why can the YTM also not be thought of being “equals the expected return on the bond if the bond is held to maturity”?
Because YTM is a discount rate that equates future cash flows to today’s price, not a projected return on those cash flows to arrive at a terminal value.
The expected return depends on the reinvestment rate for the cash flows, not merely today’s price.
But even in YTM, the reinvestment rate is assumed in advance, no…
It depends on whom you ask. Some people believe that the YTM (or any IRR for that matter), assumes a reinvestment rate, and that that is one of its shortcomings as a yield measure. Others – including yours truly – believe that it is merely a discount rate to arrive at the present value, and that it makes no assumption (nor any claim) about the reinvestment rate, nor about the terminal value of the investment.
Either way – it does make a claim about the return if the bond is held to maturity (and that claim is suspect), or it doesn’t make such a claim – it isn’t considered to be a (reliable) measure of the expected return.
If you could guarantee that each coupon could be invested at YTM immediately on receipt and without transaction costs then the expected return would equal YTM.