Fixed Income · Core
Zero-Coupon Bond
A zero-coupon bond pays no coupon and one cash flow at maturity — duration equals maturity, and the whole return is pull-to-par plus yield change.
Definition
Price = Par / (1+y)^T. Issued as discounts or stripped from coupons (STRIPS). Tax in some regimes is imputed OID. No reinvestment risk on coupons because there are none.
Why it matters
Zeros are the purest rate risk and the building blocks of the curve. LDI and barbells use them.
Case
2022 long zeros drew down like equities. Duration was the product; the missing coupons were not a comfort.
How to read it
Quote YTM and real duration. For inflation zeros (or TIPS), the index ratio is part of par.
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