Discount Bond
A bond trading below par value (price < 100).
A discount bond trades below par (price <100), meaning you pay less than face value. This happens when the bond's coupon rate is below current market yields — investors demand a discount to compensate for below-market income. For example, a 3% coupon bond trades at 95 when market yields are 4%. Capital gain at maturity: If held to maturity, discount bonds appreciate to par (100), generating a capital gain in addition to coupon income. Tax treatment: The difference between purchase price and par (called market discount) is taxed as ordinary income at maturity, not capital gain. Duration: Discount bonds have longer duration than premium bonds with the same maturity because more of the return comes from the par repayment (farther in the future).
Current Yield
Annual coupon income divided by the bond's clean price.
Running Yield
Annual coupon income divided by the bond's dirty price (clean price plus accrued interest).
Yield to Maturity (YTM)
The annualized return if you hold the bond to maturity, assuming all coupons are reinvested at the same rate.
Dirty Price
The total settlement price paid for a bond, including accrued interest.
Clean Price
The quoted bond price excluding accrued interest.
Accrued Interest
Interest that has accumulated since the last coupon payment, paid by the buyer to the seller.