Discount Bond

Discount Bond
A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market.

The "discount" in a discount bond doesn't necessarily mean that investors get a better yield than the market is offering, just a price below par. Depending on the length of time until maturity, zero-coupon bonds can be issued at very large discounts to par, sometimes 50% or more.

Because a bond will always pay its full face value at maturity (assuming no credit events occur), discount bonds issued below par - such as zero-coupon bonds - will steadily rise in price as the maturity date approaches. These bonds will only make one payment to the holder (par value at maturity) as opposed to periodic interest payments.

A distressed bond (one that has a high likelihood of default) can also trade for huge discounts to par, effectively raising its yield to very attractive levels. The consensus, however, is that these bonds will not receive full or timely interest payments at all; because of this, investors who buy into these issues become very speculative, possibly even making a play for the company's assets or equity.


Investment dictionary. . 2012.

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Look at other dictionaries:

  • discount bond — see bond 2 Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

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  • discount bond — Debt sold for less than its principal value. If a discount bond pays no coupon, it is called a zero coupon bond. Bloomberg Financial Dictionary * * * discount bond UK US noun [C] (also discounted bond) FINANCE ► a bond sold before its payment… …   Financial and business terms

  • deep discount bond — deep discount security/deep discount bond A security issued at a price well below its face value (either more than 15% in total or at a discount of more than 0.5% per annum). It will therefore have a low coupon. Much, if not all of the return to… …   Law dictionary

  • Deep-discount bond — A bond issued with a very low coupon or no coupon and selling at a price far below par value. When the bond has no coupon, it s called a zero coupon bond. The New York Times Financial Glossary * * * deep discount bond UK US noun [C] ► FINANCE,… …   Financial and business terms

  • deep-discount bond — A bond issued with a very low coupon or no coupon that sells at a price far below par value. A bond that has no coupon is called a zero coupon bond. Bloomberg Financial Dictionary * * * deep discount bond UK US noun [C] ► FINANCE, STOCK MARKET a… …   Financial and business terms

  • Deep-Discount Bond — 1. A bond that sells at a significant discount from par value. 2. A bond that is selling at a discount from par value and has a coupon rate significantly less than the prevailing rates of fixed income securities with a similar risk profile. 1.… …   Investment dictionary

  • Deep-Discount-Bond — Unter einem Deep Discount Bond versteht man eine Anleihe, deren Kupon bewusst so niedrig gehalten ist, dass sie mit einem großen Kursabschlag emittiert wird, d.h. zu Beginn ihrer Laufzeit stark unter pari notiert. Kategorie: Verzinsliches… …   Deutsch Wikipedia

  • bond — 1 n 1 a: a usu. formal written agreement by which a person undertakes to perform a certain act (as appear in court or fulfill the obligations of a contract) or abstain from performing an act (as committing a crime) with the condition that failure …   Law dictionary

  • discount — dis·count 1 / dis ˌkau̇nt/ n: a reduction made from the gross amount or value of something: as a: a reduction made from a regular or list price or a proportionate deduction from a debt account usu. made for prompt payment or for payment in cash b …   Law dictionary

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