The bond discount is the difference between a bond's current market price and its higher face value or maturity value. This phenomenon occurs when bonds are issued below par value or due to market conditions such as rising interest rates or heightened default risk.
Coupon stripping is a financial process in which the coupons are stripped off a bearer security and then sold separately as a source of cash, with no capital repayment; the bond, bereft of its coupons, becomes a zero coupon bond and is also sold separately.
A deferred interest bond is a type of bond that does not pay interest periodically like traditional bonds. Instead, it accrues interest, which is paid in a lump sum at maturity. An example of a deferred interest bond is a zero coupon bond.
M-CATS, or Municipal Certificate of Accrual on Treasury Securities, is a type of zero-coupon bond issued by a municipality. These bonds do not pay periodic interest but are sold at a significant discount to their face value.
Original Issue Discount (OID) refers to the discount from par value at the time a bond or debt instrument is issued. It plays a crucial role in the bond market, particularly in zero coupon bonds, and involves complex tax treatments.
A zero coupon bond is issued at a discount and matures at its face value, paying no interest during its life. It is a deep discount bond and offers a unique investment opportunity.
