DEFINITION of ‘Short Coupon’
A payment made on a bond within a shorter time interval than is normal for the bond. Most often, a short coupon is a bond’s first coupon. A short coupon is used if the issuer wishes to make payments on certain dates, for example, June 30 and December 31, rather than simply after a particular interval from when it is sold in the primary market.
BREAKING DOWN ‘Short Coupon’
In the U.S., coupon payments are commonly made every six months. In other countries, it is customary to make coupon payments only once per year. The schedule by which coupon payments are made does not generally affect yields, since the price of a bond will quickly adjust such that the effective yield on any given issue is comparable to similar bonds in the market. However, unusual payment schedules, such as those in which no payment is made for several years, may require a higher effective yield to entice buyers.