zero coupon bonds

Quote from TheStudent:

is accurate.

H2O - please don't give tax advice without thoroughly checking it.
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See my previous post.

Sorry if I wasn't clear that I was speaking for my situation (No US citizen)
 
Quote from mr roboto:

The primary benefit of zero coupon bonds is that there is no reinvestment of coupon risk. For longer term interest-bearing bonds held to maturity, the biggest hidden risk is reinvestment of your coupon flow. The yield to maturity calculation is actually an estimate, with the key assumption that all coupons earned during the life of the bond will be reinvested at the same yield. This almost never happens. If rates go up, you get to reinvest at higher rates, but meanwhile, the value of your bond has fallen, and vice-versa. For pension funds and life insurance companies that need to pinpoint assets to target dates to offset liabilities, and/or cannot tolerate reinvestment risk, zeros are perfect. For individuals, they make more sense in an IRA for reasons stated before. They can be great trading vehicles too, but you'd better understand the dynamics of how they are priced vs. the yield curve, or you can get burned.
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Nice explanation - thanks
 
Quote from H2O:

I'm no US citizen....

Where I live (Europe), this is how the situation used to be : interest is taxed, but capital gains are not.

At the moment a new system is in place,
We only pay 1.2% taxes (regardless of the return we make) on our accounts. (Of course this is different if you're a trader (tax status) In that case you will pay income taxes on your gains)

Hope this helps
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I can give you the example of Switzerland. Capital gains aren't taxed, but zeros are taxed as if they were bearing interests.
 
If you have an IRA and you do not like being bothered to watch the markets each day and reinvest your coupons, then zero-coupon bonds are for you :)))
 
Quote from NasdaqTrader:

http://bonds.finance.yahoo.com/z1?b...0000&ytl=-1.000000&ytu=-1.000000&yu=-1.000000

Looking at the May 2030 zero coupon treasuries,they are currently priced at $282.50,in which you receive $1000 upon maturity.So for example with a $1,000,000 investment,you average out to $101,592 per year in interest over the 25 years,versus say $50,000 per year in interest on a 5% coupon bond.
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http://bonds.finance.yahoo.com/z1?b...0000&ytl=-1.000000&ytu=-1.000000&yu=-1.000000

Since my last post on 1/6,the bonds are now at $334.30...a rise of 18% in 4 1/2 months.
 
Quote from BA_Trader:

according to the SEC this isn't true --

"In addition, although zero coupon bonds do not pay any interest until they mature, investors may still have to pay federal, state, and local income tax on the imputed or "phantom" interest that accrues each year."

-- and this is the main reason I can't see the value in these things
beyond keeping hands out of the cookie jar.
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Some zeros, for example the Sea River Maritime* zeros of 2012 are "grandfathered in" and are exempt from the imputed rate taxation.

*These bonds are guaranteed by Exxon and were issued as 30 year zeros in 1982. They beat the TEFRA act of 1982 which shut down this interest to capital gains conversion device.
 
Bonds like series EE and I, they have their advantages (i.e. inflation protection and low cost putability), which should not be taken lightly. Zeros, in addition, are the best way to play yield curve and credit spread games.
 
Quote from BA_Trader:

Why the hell would anyone want these things?

Do people really have to go to these lengths to prevent
themselves from blowing junior's college money?

J
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If you belevie US is facing deflation this is one of the greatest long term investment.
 
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