Coupon Rate
The annual interest rate a bond pays as a percentage of its face value.
What is Coupon Rate?
The coupon rate is the annual interest rate stated on a bond, expressed as a percentage of the bond's face value. A bond with a $1,000 face value and a 5% coupon rate pays $50 per year in interest, typically in semi-annual installments of $25. The coupon rate is fixed at issuance and does not change. However, as market interest rates change, the bond's price adjusts so that its yield to maturity reflects current rates. The coupon rate is therefore distinct from the current yield and yield to maturity, which account for price differences from par.
Example
A 10-year Treasury note issued with a 4.50% coupon rate pays $45 per year per $1,000 of face value. If rates rise to 5.50%, the note's price falls below $1,000 to compensate new buyers for the below-market coupon.
Source: US Treasury — TreasuryDirect