• A bond discount is the amount by which the market price of a bond is below its principal amount due to be redeemed.
  • A bond issued at a discount has a market price below par value, creating a capital gain at maturity as the higher par value is paid at maturity of the bond.
  • Different bonds trade at a discount for different reasons - for example, secondary market fixed-coupon bonds trade at a discount when interest rates rise, and short-term zero-coupon bonds are often discounted when supply exceeds demand. .