What is a 'Discount Note'

A short-term debt obligation issued at a discount to par. Discount notes are similar to zero-coupon bonds and Treasury bills and are typically issued by government-sponsored agencies or highly rated corporate borrowers. Discount notes do not make interest payments; instead the bond is matured at a par value above the purchase price, and the price appreciation is used to calculate the investment's yield.

Discount notes will have maturity dates of up to one year in length.

BREAKING DOWN 'Discount Note'

The biggest issuers of discount notes are Freddie Mac and the Federal Home Loan Banks. Most institutional fixed-income buyers will compare the yield-to-maturity (YTM) of various zero-coupon debt offerings with standard coupon bonds, looking for yield pickup in discount bonds.

RELATED TERMS
  1. Discount

    The condition of the price of a bond that is lower than par, ...
  2. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  3. Discount Yield

    Discount yield is a measure of a bond's percentage return. Discount ...
  4. Market Discount

    The difference between a bond's stated redemption price and its ...
  5. Bond Discount

    The amount by which the market price of a bond is lower than ...
  6. Bank Discount Rate

    The interest rate for short-term money-market instruments like ...
Related Articles
  1. Investing

    Explaining Original Issue Discount

    An original issue discount is the amount below par at which a bond or other debt instrument is issued.
  2. Investing

    All About Zero Coupon Bonds

    Zero-coupon bonds are bonds that do not make any interest payments (which investment professionals often refer to as the "coupon") until maturity. For investors, this means that if you make an ...
  3. Investing

    Calculating Bond Equivalent Yield

    The bond equivalent yield calculates the semi-annual, quarterly or monthly yield on a discount bond or note.
  4. Investing

    How To Evaluate Bond Performance

    Learn about how investors should evaluate bond performance. See how the maturity of a bond can impact its exposure to interest rate risk.
  5. Investing

    Zero-Coupon Bond

    A zero-coupon bond or ‘no coupon’ bond is one that does not disburse regular interest payments. Instead, the investor buys the bond at a steep discount price; that is, at a price ...
  6. Investing

    How Do I Calculate Yield To Maturity Of A Zero Coupon Bond?

    Yield to maturity is a basic investing concept used by investors to compare bonds of different coupons and times until maturity.
  7. Investing

    Are Bonds Selling At A Premium A Good Investment?

    A bond with a par value – or face value -- of $1,000 is selling at a premium when its price exceeds par.
RELATED FAQS
  1. What types of fees apply to checking accounts?

    Learn about the difference between a bond's coupon rate and its yield to maturity, and how the par value, coupon rate and ... Read Answer >>
  2. How does an investor make money on a zero coupon bond?

    Learn about investing in zero-coupon bonds, exactly how they work as an investment vehicle, and their advantages and disadvantages ... Read Answer >>
  3. What is the difference between yield to maturity and the spot rate?

    Find out how yield to maturity and spot rate calculations use different discount rates to determine the present market value ... Read Answer >>
  4. Can the marginal propensity to consume ever be negative?

    Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the basic components of bonds and how ... Read Answer >>
  5. What is the relationship between current yield and yield to maturity (YTM)?

    Learn about the relationship between a bond's current yield and its yield to maturity, including how the market price of ... Read Answer >>
  6. What is the difference between a zero-coupon bond and a regular bond?

    The difference between a zero-coupon bond and a regular bond is that a zero-coupon bond does not pay coupons, or interest ... Read Answer >>
Hot Definitions
  1. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  2. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  3. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  4. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  5. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  6. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
Trading Center