Coupon Bond

Reviewed by Apoorva | Updated on Aug 26, 2020

Introduction

A coupon bond, also known as a bond coupon or bearer bond, is a debt obligation with coupons attached. Coupon bonds are rare with the advancement of electronic payments. It offers a simple way for an investor to get additional interest.

Coupons are usually described based on the coupon rate, i.e. the yield a coupon bond pays on the date of issuance. The coupon rate may change. The coupon rate is calculated by the sum of all the coupons paid per year and dividing it by the bond's face value.

Understanding Coupon Bond

Coupon bonds are just a reference to the rate rather than a physical certificate or a coupon. Since bonds are formed electronically, there are very few people who prefer paper certificates. Typically, they make a semi-annual payment per coupon. The yield you receive on the date of issuance is the coupon rate. A high-value coupon rate looks attractive for investors since they provide high yields.

Typically, modern bonds are registered bonds with physical certificates that includes the name of the registered holder and the terms of the debt. The registered holder will receive interest payments automatically from the issuing institution.

Some bonds are in the form of book-entry bonds, which are electronically registered and linked to the issuer and its investors. In this category, the investor gets receipts instead of certificates. Investors also get accounts handled by financial institutions. They receive their interest payments through these accounts.