Deep Discount Bond

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Deep Discount Bond

A bond or other debt instrument that is issued at a price far below its face value. For example, a bond with par of $10,000 might be issued to an investor for $5,000. Junk bonds are often deep-discount bonds.

Deep discount bond. Deep discount bonds are originally issued with a par value, or face value, of $1,000. But they decline in value by at least 20% -- to a market value of $800 or less -- typically because interest rates have increased.

They may also decline if people believe the company may have difficulty making the interest payment or repaying the principal. Either way, investors will no longer pay full price for the bond.

Deep discount bonds are different from original issue discount bonds, which are sold at less than par value and accumulate interest until maturity, when they can be redeemed for par value. Zero-coupon bonds are an example of original issue discount bonds.

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