Bonds & rates
Zero-coupon bond
A bond that pays no interest and is instead issued well below face value.
How it works
The entire return comes from the gap between the discounted purchase price and the face value repaid at maturity.
With no coupons to receive along the way, a zero has the longest duration of any bond of its maturity, making it the most sensitive to interest-rate moves.
Related terms
- DurationHow much a bond’s price moves when interest rates change, expressed in years.
- Face valueThe amount a bond repays at maturity, and the amount its coupon is calculated on.
- Discount and premiumA bond trading below face value is at a discount; above face value, at a premium.
- Yield to maturityThe total annual return from holding a bond to maturity, counting coupons and any price gain or loss.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.