Why do different bonds have different coupon rates?
If the coupon rates are based on the current interest rates, why don’t all bonds have the same coupon rates? Why are some different?
Posted on February 8, 2010 at 9:43 am by admin · Permalink
In: Coupon Q&A · Tagged with: bonds, coupon rates, current interest rates, current rates
In: Coupon Q&A · Tagged with: bonds, coupon rates, current interest rates, current rates
on February 8, 2010 at 9:43 am
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Most bonds have fixed coupons. They are set at the time of issuance. Only floating rate bonds have coupons based on current interest rates.
on February 8, 2010 at 9:43 am
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demand/supply
on February 8, 2010 at 9:43 am
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Coupon rates for most bonds are fixed – based on how they were sold at the time of issue.
on February 8, 2010 at 9:43 am
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1. Different bonds can be issued at different prices to reflect the market at the time they are actually sold. Not all bonds are issued at 100. This would make the yield different than the coupon rate, even for new bonds.
2. Different bonds are issued at different times, reflecting the market yields at different times.
3. Different bonds have different ratings, lower rated (meaning higher risk) bonds must pay higher interest in order to attract investors.