Coupon bonds are a type of bond issue that offers the benefit of receiving an interest payment on a semi-annual basis. This is in contrast to other types of negotiable bond issues, where the payment of interest may take place on an annual or biannual basis, or even be delayed until the bond reaches full maturity. With a coupon bond, the interest payments are provided on a more frequent basis, with the face value of the bond paid in full at the time that the bond reaches maturity.
One obvious advantage of a coupon bond is that it helps to create a steady source of revenue for the bondholder during a given calendar year. Depending on the structure of the actual bond issue, the amount or coupon of the interest payment will vary. Some negotiable bonds of this type allow for a fixed coupon payment, while others allow for a variable coupon payment based on a floating system of calculating the interest due at a given point in time.
When it comes to the rate of interest that can be earned with a coupon bond, there is no set regulation that forces a coupon bond issue to be made available at an interest rate that is above or below the rates applied to other types of bonds. However, it is not unusual for the rate of interest applied to be slightly lower than other types of bonds, possibly due to the additional expenses incurred by the bond issuer as a result of the more frequent interest payments.
Like a bearer bond, it is possible to purchase a coupon bond that is transferable. However, care should be taken in choosing a coupon bond issue if this type of action may be a possibility for the future. In some cases, the transference of a coupon bond to a new bondholder may trigger a change in the way that the interest due is calculated. There may also be some type of fees involved that either the buyer or the seller will need to address before the transfer is complete.
