In fixed income, what is a 'coupon'?

A 'coupon' in the context of fixed income securities refers specifically to the interest payment made to bondholders. When an investor purchases a bond, they are effectively lending money to the issuer, who agrees to pay the bondholder regular interest payments at predetermined intervals until the bond matures. This payment, typically expressed as a percentage of the bond's face value, is known as the coupon rate.

Understanding the nature of the coupon is fundamental in bond investing, as it directly affects the income generated by the bond over its life. The coupon payment is distinct from other elements of a bond, such as its sale price, maturity date, or credit rating, which serve different purposes in assessing a bond's overall characteristics and market risk.