Current coupon type
Current coupon type is a specific characteristic of the coupon payment on a bond until the next reset date when the general coupon type is variable. The current coupon type determines how the coupon payments are structured during this period and can vary based on the terms of the bond issuance.
For example, a fixed rate current coupon type implies that the bond pays a coupon rate that remains constant until the next reset date, offering predictability in interest payments.
Variable
Variable current coupon type refers to bonds with coupon payments that can vary based on a predetermined formula or index. The coupon rate on variable current coupon bonds may be linked to factors such as inflation, market conditions, or other specified benchmarks.
Investors in variable coupon bonds are exposed to fluctuations in coupon payments, offering the potential for higher returns in certain market environments.
Zero
A zero current coupon type, also known as zero-coupon bonds, are bonds that do not make regular interest payments like traditional bonds. Instead, zero-coupon bonds are issued at a discount to their face value and mature at par, with the investor receiving the full face value at maturity.
The return on zero-coupon bonds comes from the difference between the purchase price and the face value, representing the interest earned over the bond's term. Zero-coupon bonds are valued for their ability to provide a lump-sum payment at maturity, making them attractive for investors seeking long-term capital appreciation.
Conditional
Conditional current coupon type refers to a bond where the coupon payments are contingent upon certain predefined conditions being met. These conditions could include specific financial metrics, performance targets, or other criteria outlined in the bond's terms.
The coupon payments on a conditional current coupon bond may vary based on the fulfillment of these conditions, providing flexibility to the issuer and potentially higher returns to investors if the conditions are met.
Fixed rate
A coupon rate of bonds with fixed rate of a current coupon does not change until the next reset date. At that, the general type of coupon may be variable.
These bonds offer investors a steady stream of income at a predetermined rate, unaffected by market interest rate movements. Fixed rate coupon bonds are valued for their predictability and reliability in generating consistent returns for investors.
Fixed payment
Fixed payment current coupon type denotes a bond with a predetermined fixed coupon rate that remains constant until the next reset date.
Investors receive regular fixed interest payments at the specified rate, providing predictability and stability in income streams. Fixed payment coupon bonds are popular among investors seeking consistent cash flows without exposure to interest rate fluctuations.
Floating
Floating current coupon type involves bonds with coupon rates that adjust periodically based on a reference interest rate, such as LIBOR or the Treasury yield.
The coupon payments on floating coupon bonds fluctuate in response to changes in the benchmark rate, providing investors with exposure to interest rate movements. Floating rate bonds are designed to offer protection against interest rate risk, as the coupon payments adjust to reflect prevailing market rates.