Zero Coupon Bond Quotes
Zero Coupon Bond Quotes
Zero coupon bonds, or "zeros," are issued by private sector corporations and by the federal government. In either case, they make no periodic interest payments to the bondholder. Instead, they are sold at deep discounts and mature at their full face values (i.e., $1,000 to $10,000) many years later. The interest earned is actually the difference between the discounted purchase price and the face value.
Things To Know
- When quoted in the newspaper, a corporate zero will often bear the letters "zr" next to the bond name.
How it is quoted
When quoted in the newspaper, a corporate zero will often bear the letters "zr" next to the bond name, indicating that it is a zero coupon bond. Because the investor typically has to hold a zero for many years to redeem its full value, the closing quote on a corporate zero is typically very low compared to its par value.
Popular types of zeros
The most popular types of zeros are Treasuries, which brokerage firms create and package in the secondary market. Brokerage firms create Treasury zeros, or "strips," by stripping the coupon away from the principal, bundling all coupons together in one pool and all principal in another pool. They then sell ownership interests in each pool.
The coupon pool, identified by the letters "ci," which stand for "coupon/interest," generates monthly cash flow for the investor. The principal pool, identified by the letters "bp," which stands for "bond principal," is deeply discounted and sold with the intent of collecting the full face amount upon maturity. For this reason, they are quoted at deep discounts in comparison to their par values.
