Zero-Coupon Bond
Corporate Credit Analysis glossary · Corporate Credit Analysis
Definition
A bond issued at a discount to face value that pays no periodic coupon; the entire return is the difference between issue price and par at maturity. Used in zero-EBITDA early-stage credits and in long-dated funding-cost arbitrage.
Zero-Coupon Bond in plain English
Most bonds pay you a little interest every year (a 'coupon') and give your money back at the end. A zero-coupon bond skips all those yearly payments — instead you buy it cheap and get the full face value later, and that gap is your entire profit. It's like buying a $1,000 gift card today for $700 and being unable to use it until it 'matures' into the full $1,000 in a few years. This suits young companies that aren't earning enough yet to make regular payments, and it's handy for very long-term borrowing where skipping cash payouts for years is the whole point.
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