Coupon

The Jolly Contrarian’s Glossary The snippy guide to financial services lingo.™ Go Premium A Transylvanian bond spotted in Sighișoara yesterday Index — Click the ᐅ to expand: Glossary Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

Interest. Derives from the traditional means of paying interest on a definitive, security-printed bearer bond, wherein each interest payment was represented by a detachable perforated strip on the side of the bond - you know, like coupons in the newspaper - which the bondholder would tear off and present to the paying agent in return for the interest payment in question.

Hence the fabled journey each year of the Belgian dentist in which he would set out in his Citroën 2CV with only his favourite pork-pie hat, a brown suit and a battered suitcase full of carefully clipped coupons, cross the border, present his coupons to the Luxembourg paying agent and promptly depart on a two-week bacchanalian bender in the Balearic before returning to his maxillofacial practice in Brussels' red-light district on the first day of September.

Coupon stripping

Each coupon, once detached, is its own transferable promissory note and can trade in the same way as the bearer bond from which it was detached trades. One can make a vigorous livelihood from arbitraging the value of attached and detached coupons. This is called coupon stripping.

The good old days

Of course, there aren't any security-printed bonds any more - everything is in dematerialised, book-entry form - so these days a "coupon" can refer to any interest-like payment, under loans, swaps etc, or specifically to the interest payment obligation under a bond as a discrete financial instrument from its host bond. The only place you're likely to encounter a real coupon is framed and on the wall of an ironic but cool restaurant in Transylvania.

See also

Belgian dentist