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A zero coupon bond is a debt instrument that carries no regular interest payments. Usually, the returns from holding a bond stem from regular coupon payments to a fixed percentage of the par value, whilst zero coupon bonds reimburse investors by trading at a discount below par. For example, a zero coupon bond issued at 90 will yield 10% over the lifetime of the bond when refunded at par.
When a bond trades below 100 – in very rare cases par is a figure other than 100, but this is extremely uncommon – it is considered to be trading at discount. When investors have their capital returned at the end of the bond’s life, they receive the value at par, so a bond issued at or trading below par will yield the difference. Sometimes bonds trade significantly below par because investors are worried about their creditworthiness, but generally coupon-yielding bonds trade at or above par.
Discount bonds do not provide a regular income stream, one of the main attractions of conventional bonds, so they are not well suited to all investors. However, the eventual yields can be attractive provided the investor is willing to wait until maturity to receive them. For issuing companies, zero coupon bonds are an effective way of raising capital without committing to heavy interest payments.
ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.
ADSS
8th floor, CI Tower
Corniche Road
PO Box 93894
Abu Dhabi
United Arab Emirates
Trading Services
ts@adss.com
+971 2 657 2414
Investing in CFDs involves a high degree of risk that you will lose your money due to the use of leverage, particularly in fast moving markets, where a relatively small movement in the price can lead to a proportionately larger movement in the value of your investment. This can result in loses that exceed the funds in your account. You should consider whether you understand how CFDs work and you should seek independent advice if necessary.
ADS Securities LLC (“ADSS”) is authorised and regulated by the Securities and Commodities Authority (“SCA”) in the United Arab Emirates as a trading broker for Over the Counter (“OTC”) Derivatives contracts and foreign exchange spot markets. ADSS is a limited liability company incorporated under United Arab Emirates law. The company is registered with the Department of Economic Development of Abu Dhabi (No. 1190047) and has its principal place of business at 8th Floor, CI Tower, Corniche Road, P.O. Box 93894, Abu Dhabi, United Arab Emirates.
The information presented is not directed at residents of any particular country outside the United Arab Emirates and is not intended for distribution to, or use by, any person in any country where the distribution or use is contrary to local law or regulation.
ADSS is an execution only service provider and does not provide advice. ADSS may publish general market commentary from time to time. Where it does, the material published does not constitute advice, or a solicitation, or a recommendation to a transaction in any financial instrument. ADSS accepts no responsibility for any use of the content presented and any consequences of that use. No representation or warranty is given as to the completeness of this information. Anyone acting on the information provided does so at their own risk.
