Premium Bond

A premium bond trades above par (price >100), meaning you pay more than face value. This happens when the bond's coupon rate exceeds current market yields — the high coupon makes it attractive, driving the price up. For example, a 6% coupon bond trades at 108 when market yields are 4%. Capital loss at maturity: Premium bonds decline to par by maturity — you lose the premium paid. Your total return comes from high coupons minus the amortization of the premium. Tax treatment: You can amortize the premium over the bond's life, reducing taxable income each year. Callable risk: Issuers often call premium bonds when rates fall, forcing reinvestment at lower yields (call risk).