What's a ZYB?
What's a ZYB?
ZYBs, short for zero-yield bonds, are a type of debt security that pays no interest over its lifetime. Instead, they are sold at a discount to their face value and then redeem at face value upon maturity. As a result, the investor's return comes entirely from the capital appreciation of the bond.
ZYBs are typically issued by governments or corporations with strong credit ratings. They are considered a safe investment, but they also offer a lower return than other types of fixed-income securities.
Benefits of ZYBs
There are several benefits to investing in ZYBs including:
1. Safety
ZYBs are considered a safe investment because they are backed by the full faith and credit of the issuer. This means that the investor is very likely to receive their principal back at maturity.
2. Stability
ZYBs offer a stable return because they do not pay interest. This makes them a good choice for investors who are looking for a predictable income stream.
3. Tax Advantages
ZYBs are exempt from state and local income taxes. This can make them a more attractive investment for investors who live in high-tax states.
How to Invest in ZYBs
There are two main ways to invest in ZYBs:
1. Through a broker
You can purchase ZYBs through a broker. Brokers charge a commission for their services, so it is important to compare commissions before choosing a broker.
2. Directly from the issuer
You can also purchase ZYBs directly from the issuer. This can be a good option if you are investing a large amount of money.
ZYB Issuer
| Issuer | Credit Rating |
|---|---|
| U.S. Treasury | AAA |
| State of California | AA+ |
| Microsoft Corporation | AAA |
ZYB Investment
| Investment | Return |
|---|---|
| $10,000 ZYB with a 5-year maturity and a 3% discount | $300 |
| $10,000 ZYB with a 10-year maturity and a 5% discount | $500 |
| $10,000 ZYB with a 15-year maturity and a 7% discount | $700 |
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