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

Rate of Return

Profit on an investment, expressed as a percentage of the investment.

Net asset value

Mutual funds and investment trusts are priced on their net asset value (NAV).

NASDAQ

A US stock exchange specialising in the shares of technology companies.

Base rate

What's the base rate?

Earnings per share

We look at what earnings per share mean and how to calculate it

Conventional gilts

Gilts where the dividends and principal repayments are fixed in nominal terms. This is as opposed to an index-linked gilt where the dividends and principal repayments are related to movements in the Retail Prices Index (RPI).

Fundamentals

The data or information that is likely to impact a company's stock price.

Spot Rate

The currency exchange rate a bank quotes, valid with immediate effect.

Yield curve

A graphical representation of interest rates over time

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Zero coupon bond