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Zero-Coupon Bond

This name comes from the fact that this kind of bond does not grant coupons. In bonds, coupons are regular interest payments. Zero Bonds are bought below the face value. Because of this, the interest amounts are accumulated to be paid when the bond has matured. In contrast, a standard bond owner will receive the periodic interest payments, but will only receive the face value when the bond has matured. Zero Coupon bonds are available in long term or short-term durations, as normal bonds. A long-term bond is typically 10 or 15 years. They can also be sold on secondary bond markets.

Fast Facts

  • They are available as U.S. Treasury Bills or U.S. Savings Bonds.
  • These are also known as 'discount bonds' or 'deep discount bonds.'

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