AboutDoug Ingram Expertise Fixed income portfolio allocation and strategies for institutional investors. Having designed multi-scenario risk quantification and cash flow projection models for nearly 25 years, Strategic Technical Initiatives can answer your regulatory, SFAS 115 allocation, securities selection, and other questions dealing with yield curve placement and portfolio mix strategies. I perform detailed portfolio analysis and strategy ideas for SAMCO Capital Markets. We are Dallas based, and I am in the Memphis office.
Experience Trading and designing portfolio strategies since 1980.
Question I would like to know what exactly is the difference between the following two financial instruments
- Zero Interest Bonds
- Deep Discount Bonds
with reference to the Indian Capital market (or otherwise)
Answer While most bonds have a coupon rate, zero coupon bonds are called strips because the coupon portion has been "stripped" from the bond and only the principal remains. Thus, there is no cash flow until the final maturity so the price is usually very low for longer maturities. The return is built into the discounted price.
A deep discount bond can be a zero coupon bond, a bond with bad credit or suspect ability to pay, or a longer bond with a very low coupon requiring more yield in the form of a lower price.
