The conditions applying to the bond Fixed rate bonds have interest payments ("coupon"), usually semi-annual, that remains constant throughout the life of the bond. Other variations include stepped-coupon bonds, whose coupon increases during the life of the bond. Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as Libor or Euribor. For example, the coupon may be defined as three-month USD LIBOR + 0.20%. The coupon rate is recalculated periodically, typically every one or three months. Zero-coupon bonds (zeros) pay no regular interest. They are issued at a substantial discount to par value, so that the interest is effectively rolled up to maturity (and usually taxed as such). The bondholder receives the full principal amount on the redemption date. An example of zero coupon bonds is Series E savings bonds issued by the U.S. government. Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal. This can create a "Principal Only" zero-coupon bond and an "Interest Only" (IO) strip bond from the original fixed income bond. Inflation-indexed bonds (linkers) (US) or index-linked bonds (UK), in which the principal amount and the interest payments are indexed to the level of consumer prices. The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this relationship briefly reversed for short-term UK bonds in December 2008). Higher inflation rates increase the nominal principal and coupon amounts paid on these bonds. The United Kingdom was the first sovereign issuer to issue inflation-linked gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation-linked bonds issued by the U.S. government. Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator (income, added value) or on a country's GDP. Lottery bonds are issued by European and other states. Interest is paid as on a traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule. Some of these redemptions will be for a higher value than the face value of the bond.
The conditions applying to the bond Fixed rate bonds have interest payments ("coupon"), usually semi-annual, that remains constant throughout the life of the bond. Other variations include stepped-coupon bonds, whose coupon increases during the life of the bond. Floating rate notes (FRNs, floaters) have a variable coupon that is linked to a reference rate of interest, such as Libor or Euribor. For example, the coupon may be defined as three-month USD LIBOR + 0.20%. The coupon rate is recalculated periodically, typically every one or three months. Zero-coupon bonds (zeros) pay no regular interest. They are issued at a substantial discount to par value, so that the interest is effectively rolled up to maturity (and usually taxed as such). The bondholder receives the full principal amount on the redemption date. An example of zero coupon bonds is Series E savings bonds issued by the U.S. government. Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal. This can create a "Principal Only" zero-coupon bond and an "Interest Only" (IO) strip bond from the original fixed income bond. Inflation-indexed bonds (linkers) (US) or index-linked bonds (UK), in which the principal amount and the interest payments are indexed to the level of consumer prices. The interest rate is normally lower than for fixed rate bonds with a comparable maturity (this relationship briefly reversed for short-term UK bonds in December 2008). Higher inflation rates increase the nominal principal and coupon amounts paid on these bonds. The United Kingdom was the first sovereign issuer to issue inflation-linked gilts in the 1980s. Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation-linked bonds issued by the U.S. government. Other indexed bonds, for example equity-linked notes and bonds indexed on a business indicator (income, added value) or on a country's GDP. Lottery bonds are issued by European and other states. Interest is paid as on a traditional fixed rate bond, but the issuer will redeem randomly selected individual bonds within the issue according to a schedule. Some of these redemptions will be for a higher value than the face value of the bond.