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What are Long Coupons?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 20 August 2016
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The term “long coupon” has two different meanings in the financial world, both related to bonds. One refers to a specific type of bond, while the other is a reference to an individual coupon period associated with a bond. Coupon periods are stretches of time during which interest accrues. At the end of each coupon period, an interest payment is made to the bondholder.

Bonds that mature in 10 years or more are known as long coupons. These bonds are purchased as long-term strategic investments, usually as part of a mixed portfolio that also includes short-term investments. A long coupon may have a more favorable interest rate because the bond issuer wants to provide an incentive for investors. Having funds locked up in a bond for an extended period of time is a hardship for investors, but that can be sweetened with high interest.

The maturity period and interest offered on a bond are disclosed at the time of sale. People can usually choose between a number of bond products to find the one that suits their needs. Investors can consult financial advisors to get recommendations on specific bonds, as well as rate information about current bond offerings, so they can be aware of their options. This information is also published in financial publications and is often available online as well.

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Long coupons can also be coupon periods that are unusually long when compared to the other coupon periods associated with the bond. Most commonly, the first coupon period is the long coupon. For example, a bond might be issued with six-month coupon periods and a long coupon at first that does not pay interest for a year. Long coupons are also disclosed at the time of sale so investors can make decisions about the bond products they want to buy.

For people making long-term investments, long coupons can be suitable investment products because they can earn more money over time for the investor. However, they also tend to be more difficult to sell and are not a very liquid form of investment. People who think they are going to need funds in the near future should find more flexible investment options to avoid taking a loss on long coupons and other long-term investment products. Mixing illiquid long-term investments with liquid short-term ones that have lower returns can also be a way of providing investment flexibility.

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