Today the Treasury will issue a new five-year fixed coupon bond
in addition to the re-issues of the ten-year CPI-linker followed by the re-issues of the ten-year fixed coupon bond
, seven-year FRN and two-year fixed coupon bond
25/share; ii) purchasing the new convertible put/call 1-year 3% coupon bond
of USD 70mn with a conversion price of USD 5.
Under prior regulations, taxpayers purchasing TIPS at par or at a de minimis premium or discount were required to recognize income using the coupon bond
method of Regs.
Treasury held a 21-month (644-day) TRY denominated zero coupon bond
auction as well as a 3-year (966-day) TRY denominated fixed coupon bond
The coupon bond
method is a simplified version of the discount method (see below) that will apply if two conditions are satisfied: (1) the bond must be issued at par; and (2) all stated interest must be qualified stated interest.
Bryant cautions the investor to be aware that although the buyer of the zero coupon bond
does not receive interest payments yearly--as they would with a regular bond (coupon)--the buyer is responsible for paying taxes on the accumulation of interest on the bond, an amount known as the accreted value of the bond.
This formulation is better suited for the regression-based calculation of duration than the usual method of using change in zero coupon bond
yields, because it takes into account the time dimension of returns on the zero coupon bond
from one month to the next.
For example, you might purchase a zero coupon bond
today for $500 that will mature in 10 years for $1,000.
Thus, an investment manager may purchase a 10-year, 10-percent coupon bond
in order to meet an obligation in 10 years only to find that soon after the security is purchased, market rates decline and the return earned from the reinvestment of interest payments is considerably less than originally anticipated.
Alternatively, the creditors will be offered a zero coupon bond
of the KAF with a term of about 13.
4bn from public institutions through a 2-year fixed coupon bond
and 10-year CPI-linker yesterday.
These instruments were subject to "bifurcation" rules so that, for tax purposes, a MITT was treated as two separate instruments--a zero coupon bond
(bearing original issue discount) and a cash settlement option on the S&P 500 index.