Glossary · Bonds and rates
Coupon
A bond’s coupon is the fixed interest it pays, usually twice a year, set as a percent of its face value when the bond is first sold.
Also called: coupon rate, coupon payment, bond interest
At 4.98% on November 10, 2026: two payments of about $249.
In plain words
Lend someone $1,000 and ask for $50 a year in interest. Write that promise down and you have a bond; the $50 is its coupon. The coupon rate is that interest as a share of the bond’s face value: $50 on $1,000 is a 5% coupon.
The name is old. Bonds used to be printed certificates with little tickets along the edge, one for each interest date. On the date, the owner cut off a coupon with scissors and handed it in for cash, which is why people living on bond interest were once called “coupon clippers”. Today it is all electronic, but the name stuck.
The coupon does not change during the bond’s life. US Treasury notes and bonds pay it in two halves, every six months. A new 10-year Treasury bought at today’s yield of 4.98% would pay about $498 a year on every $10,000.
Example
Coupon payments on a 3-year bond
- You buy a 3-year bond with a $10,000 face value and a 4.5% coupon, paid twice a year.
- Each payment is $10,000 × 4.5% ÷ 2 = $225, every six months.
- Over 3 years you get six payments, $1,350 in all, plus the $10,000 back at the end.
- Had you bought it for $9,800 instead, the payments would still be $225: the coupon is fixed on the face value, not on what you paid.
That is why the coupon and the yield differ: the yield counts the price you paid as well.
One level deeper
When a government or company sells a new bond, it sets the coupon close to the yield investors demand that day, so the bond sells for about its face value. The US Treasury sets the coupon at each auction in steps of ⅛ of a percent, at or just below the yield the auction produces.
Not every bond has a fixed coupon. A zero-coupon bond pays none and is sold at a discount instead. Floating-rate notes reset their coupon to a market rate every few months, and inflation-protected bonds pay a fixed rate on a principal that grows with prices.
Coupons lock in the rates of their day. At the average 10-year Treasury yield of 1981, $10,000 earned $1,391 a year. At the average of 2020, it earned only $89.47. Each bond kept its coupon to the end, whatever rates did next.
Interest on $10,000 in a new 10-year Treasury, by year
What $10,000 would earn a year at each year’s average 10-year Treasury yield: roughly the coupon a new 10-year note paid then. A buyer locked that amount in for ten years.
The numbers behind the chart
| Date | Interest a year on $10,000 |
|---|---|
| 1954 | $240 |
| 1960 | $412 |
| 1970 | $735 |
| 1980 | $1,146 |
| 1990 | $855 |
| 2000 | $603 |
| 2010 | $321 |
| 2020 | $89 |
| 2022 | $295 |
| 2023 | $396 |
| 2024 | $421 |
| 2025 | $429 |
| 2026 | $456 |
Why it matters
The coupon is the income: it is what someone living on bonds actually spends.
It shapes how much a bond’s price swings when rates move. Bonds with low coupons swing more, because more of their value comes at the very end (see duration).
Old bonds with coupons far above or below today’s rates trade far above or below their face value; the coupon tells you why.
A common mistake
Myth: The coupon rate is what I earn on a bond.
In fact: Only if you pay exactly the face value. Buy a 4% coupon bond for less than face value and you earn more than 4% a year until it matures; pay more and you earn less. That return is the yield.
Questions people ask
How often are bond coupons paid?
US Treasury notes and bonds and most US company bonds pay every six months; many European bonds pay once a year. Each payment is the yearly coupon divided by the number of payments.
What happens to the coupon if interest rates change?
Nothing: a fixed coupon stays the same until the bond matures. What changes is the bond’s price, which adjusts so that a new buyer earns the market’s yield.
What is a bond with a 0% coupon?
A zero-coupon bond. It pays no interest along the way; you buy it for less than its face value and get the full amount at the end.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US Treasury par yield curve rates: U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates (Interest Rate Statistics).
- S&P Composite (price, dividends, earnings, CAPE), US consumer prices and the 10-year Treasury rate: Robert J. Shiller, Online Data (shillerdata.com).
- This page explains a term. It is not investment advice.