Coupons

What are coupons?

Coupons are interest payments on a bond. To a large group of investors, coupons are the main reason for purchasing a certain bond.

Coupons can take various types and are explained below.

How do I know when a coupon will be paid?

Explanation to follow shortly.

How often are coupons paid?

When Eurobonds are issued, the issuer decides how often a coupon will be a paid. Most commonly coupons are paid annually, semi-annually, quarterly or monthly.

All Nigerian Eurobonds follow a semi-annual coupon payment reschedule, where the coupon is paid twice a year. In other words, the coupon is divided over two equal payments in a calendar year.

How much coupon income does an investor receive?

The amount of coupon income an investor receives is subject to the coupon rate, the coupon payment frequency and the nominal holding in a bond.

As an illustration, the coupon payment schedule for the November 2025 Republic of Nigeria Eurobond is presented below. The bond was issued on November 21st 2018, pays a 7.625% annual coupon and it’s first coupon was due on May 21st 2019. The schedule is based on a nominal holding of $1,000,000 and assumes the investor holds the Eurobond until it’s maturity date.

Please note that the 7.625% coupon is divided over two equal payments every 180 days. The coupon income to be received on each coupon date is calculated as:

(Coupon Rate / Coupon Payment Frequency) * Nominal Holding.

In this case it is (7.625% / 2) * $1,000,000 = $38,125.00.

Do bond prices drop after a coupon is paid?

Unlike stock prices, who usually reprice after a dividend is paid, bond prices do not drop after a coupon is paid. The payment of the coupon is expected and therefore priced in the cash price. Dividend payments are at the discretion of the company and therefore do not present an obligation.  Not paying the coupon is an event of default.