Find Out if a Discount Bond is Right for Your Portfolio
Zero-coupon bonds were introduced to the fixed-income market in 1982 as a very unique concept in the marketplace. While most municipal bonds provide semiannual interest payments, zero-coupon bonds have no “coupon”, or periodic interest payments. Having a complete understanding of zero-coupon municipal bonds means becoming acquainted with the principal characteristics of both municipal bonds and the zero-coupon structure.
Instead, the investor receives one payment at maturity that is equal to the principal invested plus the interest earned, compounded semiannually, at a stated yield.
Discount bonds are sold at a substantial discount from the face amount. When a zero-coupon bond matures, the investor receives the full face value of the bond.
Types of Zero-Coupon Municipal Bonds
There are three main categories of discount securities available:
- Zero-coupon Treasury bonds – Generally considered the safest zero-coupon bonds, backed by the full faith and credit of the U.S. government. (Taxable)
- Zero-coupon corporate bonds – The rate of return is commensurate with credit risk, which will vary based on the issuing entity. (Taxable)
- Zero-coupon municipal bonds – Accrue interest that compounds free from federal income tax and, in many cases, free of state and local tax as well.
To determine whether or not zero-coupon municipal bonds are right for you, you should review your investment objectives.
- Using zero-coupon municipal bonds – Find out how to use zero-coupon municipal bonds in your financial planning. Learn more…
Put a municipal bond specialist to work for you. Work with one of our bond specialists to define your investment objectives and determine whether a zero-coupon municipal bond is the right type of bond for you and your financial portfolio. Contact us today or call 877-467-0070.