Posted in Finance, Accounting and Economics Terms, Total Reads: 244
Definition: Short Coupon
A short coupon is similar to the coupon payment on a bond the only difference being that it is for a shorter interval as compared to a conventional bond. In most cases, a short coupon is the first coupon payment of a bond made by the issuer. A short coupon type of payment is used when the issuer of the bond wishes to make payments on specific dates.
For example, if an issuer wishes to pay coupons on June 30 or December 31 he/she can do it on these days instead of the paying it after a particular interval from when it was issued in the primary market.
Coupon payments are generally made semi annually i.e. after every six months whereas in most other countries the payments are made once in a year. This difference in schedules in which these coupon payments are made does not generally affect the yield of the bond. This is because the price of the bond gets adjusted quickly. Due to this adjustment, the effective yield of any given issue is comparable to other similar bonds floating in the market. However, unusual payment schedules, mostly in the case of those bonds in which no payments are made for several years, may need the effective yield to be higher in order to attract more buyers.