What are zeros and what type of investment goals are they good for?
Zero Coupon Bonds are those issued without any periodic interest payments or coupon. They are sold at a discount from par value with the amount of the discount representing the interest due on the investment. The amount of the discount is a factor of the length of time to final maturity and the prevailing level of interest rates. Most bonds have reinvestment risk, i.e., you do not know at what interest rate levels you will be able to reinvest the coupon payments. Since a zero coupon bond does not have any interest to reinvest, you don’t have reinvestment risk. When you buy a zero such as a US Treasury STRIP (zero) you know what you will end up with. No need to worry about reinvestment. They are good investments for those who need a certain amount at a future date and do not need current income. You pay $X now and get par in the future. Corporate, Treasury and other taxable zeros are best for tax deferred investors such as 401-Ks, IRAs, pension plans, etc. Tax-exempt municipal zeros are
