High-coupon bonds are debt securities that pay a relatively high interest rate compared to prevailing market rates or similar bonds with comparable risk. The “coupon” refers to the fixed annual interest payment expressed as a percentage of the bond’s face value. For example, if a bond has a face value of $1,000 and a 10% coupon rate, it pays $100 per year to the investor, typically in semiannual instalments.

These bonds are attractive to income-focused investors because they provide larger, regular cash flows. Retirees and conservative investors often prefer high-coupon bonds for their predictable income stream. However, a high coupon rate may also signal higher risk. Companies or governments with lower credit ratings often issue high-coupon bonds to compensate investors for increased default risk.

High-coupon bonds are also sensitive to interest rate movements. When market interest rates rise, the prices of existing bonds generally fall. Although high-coupon bonds may decline less sharply than low-coupon bonds due to their larger income payments, they are still affected by interest rate risk.

In some cases, bonds carry high coupons because they were issued during periods of high interest rates. If market rates later decline, these bonds may trade at a premium above their face value. Overall, high-coupon bonds offer attractive income potential but require careful evaluation of credit quality, market conditions, and overall investment objectives.