Zero coupon bonds are issued at a discount to their par value because you purchase them for a discount and receive no periodic interest payments. You realize the return through the bond’s appreciation to par value over time.
Zero coupon bonds are great for investors seeking a fixed-income vehicle without the semi annual payments of traditional bonds. The deep discount at which they are initially purchased can yield substantial returns at maturity, appealing to those investors with a specific investment objectives. However, the complexity of their price sensitivity to interest rate changes means a thorough risk assessment strategy is needed.