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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
For deep discount bonds, this means that bondholders may have tax liability that exceeds the actual cash interest income from the bonds.
18 May 2011 - Rating agency CARE today said it had upgraded the ratings on the long-term bank facilities and the deep discount bonds of Indian bridge operator Noida Toll Bridge Co Ltd to A from A-.
* Deep Discount Bonds. Bonds having a very low interest rate and therefore issued at a substantial discount.
Since many of the holders of PIK or deep discount bonds are tax-exempt pension trust or foreign holders, however, no one is likely to complain about the lack of symmetry in view of the fact that the OID accrual otherwise is a tax-neutral event.