Glossary
Discounted bond
Discounted Bond is a bond that is issued or traded in the secondary market at a price below par (
a discounted bond).
Discount bonds can be:
- troubled bonds, the issuer of which is on the verge of default, and payment of coupons and redemption is unlikely. It also includes bonds for which the issuer does not comply with the approved covenants. Due to the inability of the issuer to fulfill its financial obligations, such bonds fall in price in the market.
- zero-coupon bonds, the income on which is accrued at the moment of redemption, as the difference between the purchase price and the redemption price (if it is equal to the par value). Compared to a bond with a regular coupon payment, the type of investment in a zero-coupon bond carries a higher credit risk (risk of default).
The upside of investing in discounted bonds is the ability to generate significant capital gains if the bonds are eventually redeemed.