Treasury Coupon Bonds
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Treasury Coupon bonds are bonds issued by the US Treasury that come with semi-annual interest payments while the face values of the bonds are paid upon maturity. Compared to other types of negotiable bond issues, Treasury coupon bonds come with more frequent interest payments. Other types of bonds offer interest income on annual or biannual basis. With some bonds, you need to wait until they mature, in order to receive interest income.[br]
Treasury Coupon Bonds – Bond Prices
Historically, bonds were issued as bearer certificates where the certificates were conclusive proof of ownership. Several coupons were printed on certificates so that one could detach one coupon physically from the certificate and present it for interest payment. This process is called ‘clipping the coupon.’ The market determines the price of a bond on the basis of various factors, which include:
The amount and coupon dates.
The amount and date of redemption upon maturity.
Issuers’ ability to pay the principal amount and interest on time.
The yields of similar bonds.
The most important advantage of treasury coupon bonds is that they let you create a stable source of income during a given year. The coupon rate can vary depending upon the structure of the bonds. Some negotiable bond types come with fixed interest rates while others come with variable coupon rates based on the floating interest rate.[br]
Zero Coupon Bonds
Zero coupon bonds are bonds that do not come with interest payments. Rather, the bonds are sold at prices lower than face value and their redemption is on par with the face value. Some fixed income securities such as US Savings bonds and US Treasury Bills are zero coupon bonds.
You can buy certain treasury coupon bonds that are transferable just like bearer bonds. However, you should ensure that the coupon bond you buy is transferable. Moreover, the ability to transfer can lead to changes in the way interest due is calculated. Some issuers may charge a fee for transfer. You need to consider these things before completing a transfer when it comes to Treasury Coupon Bonds