What are 'zero-coupon bonds'? Definition & meaning

What is a zero coupon bond?

A zero coupon bond is a bond that does not make interest payments.

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This type of bond is issued at a discount to its maturity value and is redeemed at the maturity value, generating a return for the investor.

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UK Treasury bills are an example of a zero coupon bond.

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Zero coupon bonds can be issued by governments, municipalities, and companies.

More terms

Accounting standards

The rules a company follows when preparing financial statements.

Costs and Charges

The money you pay when investing.

Diversification

An investment strategy in which money is put into a variety assets.

Exchange-Traded Fund (ETF)

A collection of investments, pooled into a single fund that can be bought and sold on a stock exchange.

Junk Bond

A form of debt investment that carries higher risk because of the likelihood that the issuer will default.

Zero coupon bonds

What is a zero coupon bond?

Nominal amount

The face value of a gilt. It represents the amount that will be repaid to the holder at maturity and is also used to calculate the dividend or coupon payment.

Alpha

The percentage by which an investor outperforms a relevant benchmark.

Forward pricing

Mutual funds are traded on a forward pricing basis, meaning the price you see will be different to the price you may trade at.

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Zero coupon bond