What is a bond discount?

The bond discount is the difference by which a bond's market price is lower than its face value. For example, a bond with a par value of $1,000 that is trading at $980 has a bond discount of $20. The bond discount is also used in reference to the bond discount rate, which is the interest used to price bonds via present valuation calculations.

What is a deep discount on a zero-coupon bond?

The discount amount is equal to the amount lost by a lack of interest payments. Zero-coupon bond prices tend to fluctuate more often than bonds with coupons. The term deep discount doesn't only apply to zero-coupon bonds. It can be applied to any bond that is trading at 20% or more below market value. A discount is the opposite of a premium.

Can institutional investors buy discount bonds?

However, institutional investors must adhere to specific regulations for the purchase and sale of discount bonds. U.S. savings bond is one of the examples of a discount bond. What is Discount Bond? Discount bonds are issued at a price below their face value, enabling investors to purchase them at a discount.

Should you buy a distressed bond at a discount to par?

A distressed bond trading at a significant discount to par can effectively raise its yield to attractive levels. Discount bonds may indicate the belief that the underlying company may default on their debt obligations. Many bonds are issued with a $1,000 face value meaning the investor will be paid $1,000 at maturity.