What is a 'Discount Note'
A shortterm debt obligation issued at a discount to par. Discount notes are similar to zerocoupon bonds and Treasury bills and are typically issued by governmentsponsored 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 fixedincome buyers will compare the yieldtomaturity (YTM) of various zerocoupon debt offerings with standard coupon bonds, looking for yield pickup in discount bonds.

Discount Yield
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Current Yield
Annual income (interest or dividends) divided by the current ...

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