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

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Professional Client

An investor that is able to meet several regulatory criteria.

Leverage

A method of trading using borrowed money that usually involves a very high level of risk.

Diversification

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

index-linked gilts

Gilts where the dividends and principal repayments are related to movements in the Retail Prices Index (RPI). This is as opposed to a conventional gilt, where the dividends and principal repayments are fixed in nominal terms.

Equity

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Gross Margin

The difference between a company's revenue and the cost to produce its goods/services, divided by revenue.

Volatility

A measure of how much the prices of an asset or index vary over time.

Know Your Customer (KYC)

A legal requirement for financial firms to understand exactly who their customers are. Used to prevent money laundering and terrorist financing.

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Zero coupon bond