Decline in Rates Reduces Interest In 'Zero' Issues
With the long drop in interest rates, corporate zero-coupon bonds haven't been getting much attention lately.</br></br>That's probably just as well for many investors. But for others, some market professionals say, corporate "zeros" could be worth a fresh look.</br></br>Zero-coupon bonds, which are issued at a steep discount from their face value, were very popular when rates were high. Not only could investors "lock in" a high rate of return for years to come, they didn't have to worry about how to reinvest periodic interest payments because there aren't any. Instead, investors profit from the difference between the issue price and the face amount payable at maturity.</br></br>Last year, however, corporations issued only $703.3 million of zero-coupon bonds, according to IDD Information Services Inc. That was less than a third of the record $2.46 billion issued in 1985.</br></br>Uncertainty about tax overhaul discouraged both issuers and buyers in 1986, but lower interest rates were the major factor. "You don't need to lock in an 8% return," says Richard S. Wilson, vice president for securities research and economics at Merrill Lynch Capital Markets.