Zero-Coupon Bond
A bond that pays no periodic interest — all return comes from price appreciation to par.
A zero-coupon bond (or 'zero') pays no coupons—all return comes from buying below par and receiving par at maturity. For example, a 10-year zero might be issued at $600 and mature at $1,000, implying a yield of ~5.2% annually. Zeros are highly sensitive to interest rates (high duration) because there are no interim coupons to cushion price volatility. Uses: Tax-deferred accounts (to avoid phantom income tax on imputed interest), liability matching (pension funds), and duration management. Examples: US Treasury STRIPS (Separate Trading of Registered Interest and Principal Securities) are zeros created by stripping coupons from regular Treasuries. Corporate zeros are less common due to unfavorable tax treatment.
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.