Definition: Interest on bonds and debentures

Category: National accounts

Bond and debentures are long-term securities that give the holder the unconditional right to: a fixed or contractually determined variable money income in the form of coupon payments, or a stated fixed sum on a specified date or dates when the security is redeemed, or both these two terms:
 a) zero-coupon bonds: there are no coupon payments.  The interest based on the difference between the redemption price and the issue price has to be distributed over the years to the maturity of the bond.  The interest accruing each year is reinvested in the bond by its holder, thus counterpart entries equal to the value of the accrued interest must be recorded in the Financial Account as the acquisition of more bond by the holder and as a further issue of more bond by the issuer or debtor (i.e.  as a growth in the 'volume' of the original bond);
 b) other bonds, including deep-discounted bonds.  The interest has two components:
 (1) the amount of the money income receivable from coupon payments each period;
 (2) the amount of interest accruing each period attributable to the difference between the redemption price and the issue price, calculated in the same way as for zero-coupon bonds.
 c) index-linked securities.