Discount Note

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
  2. Maturity Date

    The date on which the principal amount of a note, draft, acceptance ...
  3. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  4. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  5. Duration

    A measure of the sensitivity of the price (the value of principal) ...
  6. Modified Duration

    A formula that expresses the measurable change in the value of ...
Related Articles
  1. Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

  2. Bonds & Fixed Income

    Asset Allocation In A Bond Portfolio

  3. Investing

    What is a stripped bond?

  4. Bonds & Fixed Income

    Advanced Bond Concepts

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center