The coupon is the interest a bond pays, usually on a fixed schedule. A bond with a 1,000 face value and a 10 percent coupon pays 100 per year until maturity, often in two instalments. When market rates change, the bond’s price moves so that its yield stays competitive, even though the coupon cash amounts stay fixed for plain vanilla bonds.
Key takeaways
- Coupon rate is set at issue; market yield changes afterwards.
- Zero-coupon bonds pay no periodic coupon and trade at a discount instead.
- Missing a coupon payment is a form of default on most bonds.
- Compare coupon income with inflation to judge real income from a bond.