A coupon rate is the yearly interest a bond promises, stated as a percentage of its par value, the amount repaid at maturity. A 4.875% coupon on $10,000 of par means $487.50 of interest a year, which a Treasury note pays as two installments of $243.75. FINRA's investor guide also calls it the coupon yield and describes it as set when the bond is issued and unchanged over its life. This entry follows Treasury notes and bonds, whose coupons come out of auction rules; the Treasuries hub covers the wider family of securities.
How do you calculate a coupon payment?
Multiply par value by the coupon rate to get a year's interest, then divide by the number of payments a year, which is two for Treasury notes and bonds.
Turned around, the formula recovers the rate from cash: annual coupon dollars ÷ par value. A bond paying $60 a year on $1,000 of par has a 6% coupon rate whatever it trades for. Treasury's formulas appendix settles the calendar question: a full semiannual payment is half a year's interest however many days the half-year has, so a 181-day period and a 184-day period pay the same. Days only matter when a bond changes hands between payment dates, which is what accrued interest handles.
How does Treasury set the coupon rate at auction?
Treasury rounds the auction's high yield down to the nearest eighth of a percentage point, the rate that prices the security closest to par without going above it.
Treasury described the method when it added a minimum rate in 2011: the rate is set in 1/8 of one percent increments, and the one chosen produces the price closest to, but not above, par at the yield awarded to winning competitive bidders. The current text of 31 CFR 356.20 keeps that price test and the minimum but no longer repeats the eighth-point step. Auction results still follow it, since every new fixed-rate note and bond sold from August to October 2026 carries a coupon that is a multiple of 0.125%.
Worked example: Setting the coupon on the 3-year note auctioned September 8, 2026
- High yield: 4.474%
- Eighths on either side: 4.375% and 4.500%
- Price at 4.474% with a 4.500% coupon: 100.072240 per $100, above par, so 4.500% is ruled out
- Price at 4.474% with a 4.375% coupon: 99.724933, which every winning bidder paid
- On $10,000 of par: $9,972.49 at issue, then $218.75 every six months and $10,000 in September 2029
The $27.51 discount makes up for a coupon that sits 9.9 basis points under the yield buyers demanded.
Four more auctions show the same test, with prices per $100 of par. The last column, calculated with Treasury's Appendix B formulas, is the price one eighth higher.
| Auction | High yield | Coupon set | Price paid | Price one eighth higher |
|---|---|---|---|---|
| 30-year bond, August 13, 2026 | 5.216% | 5.125% | 98.627017 | 100.512003 |
| 20-year bond, August 19, 2026 | 5.204% | 5.125% | 99.021288 | 100.561575 |
| 5-year note, September 23, 2026 | 5.033% | 5.000% | 99.855714 | 100.402252 |
| 3-year note, October 6, 2026 | 4.932% | 4.875% | 99.842840 | 100.187489 |
| 2-year note, February 23, 2021 | 0.119% | 0.125% (minimum) | 100.011965 | Not applicable |
The gap between yield and coupon runs from zero to just under 12.5 basis points, and it sets the discount. The bigger the gap and the longer the term, the further below 100 the price lands, which is why the 30-year bond, with a 9.1 basis point gap and 60 coupons still to come, sits lowest. Reopenings skip the step: when Treasury sells more of an existing issue, the original coupon carries over and only the price adjusts. The same 5.125% Treasury bond was reopened on October 8, 2026 at 92.889131. How Treasury auctions work covers the bidding that produces the high yield.
The minimum took effect in April 2011. Treasury reasoned that under the old method an auction clearing below 1/8 of one percent would have produced a note with a zero interest rate and no semiannual payments, and it preferred notes that pay regular interest. The floor applies to new issues, not reopenings. In February 2021 it set the 2-year note's coupon above its 0.119% yield, so $10,000 of par was priced at $10,001.20, and the extra $1.20 was not repaid at maturity.
What does a coupon payment schedule look like?
A fixed-rate Treasury pays the same coupon on two set dates each year, six months apart and matched to its maturity date, then repays par with the last payment.
Worked example: $10,000 of the 3-year note auctioned October 6, 2026
The note, CUSIP 91282CRQ6, was issued on October 15, 2026, its dated date, at 99.842840, so $10,000 of par cost $9,984.28 with no accrued interest to pay. It matures on October 15, 2029.
| Payment | Scheduled date | Money arrives | Days in the half-year | Amount |
|---|---|---|---|---|
| 1 | April 15, 2027 | Thursday, April 15, 2027 | 182 | $243.75 |
| 2 | October 15, 2027 | Friday, October 15, 2027 | 183 | $243.75 |
| 3 | April 15, 2028 | Monday, April 17, 2028 | 183 | $243.75 |
| 4 | October 15, 2028 | Monday, October 16, 2028 | 183 | $243.75 |
| 5 | April 15, 2029 | Monday, April 16, 2029 | 182 | $243.75 |
| 6 | October 15, 2029 | Monday, October 15, 2029 | 183 | $243.75 plus $10,000 |
- Six coupons: 6 × $243.75 = $1,462.50
- Everything received: $11,462.50, against $9,984.28 paid
- Interest earned per day held: $1.3393 in the 182-day half-years and $1.3320 in the 183-day ones
Three payments slip to a Monday because the 15th falls on a weekend. Under 31 CFR 356.30 the money then arrives on the next business day, with no interest for the wait. Coupons also do not compound on their own: each arrives as cash, and what it earns afterwards depends on where it goes next, which the compound interest calculator can model. Treasury notes explained maps a 5-year note's schedule.
How do TIPS, floating rate notes and bills handle coupons?
TIPS pay a fixed coupon on inflation-adjusted principal, floating rate notes pay a weekly index plus a fixed spread, and bills and STRIPS pay no coupon.
| Security | How the rate is set | How often it pays | October 2026 example |
|---|---|---|---|
| Fixed-rate notes and bonds | High yield rounded down to an eighth, minimum 0.125% | Every six months | 3-year note: 4.875% coupon at a 4.932% yield |
| TIPS | Real yield rounded down to an eighth, minimum 0.125%, paid on principal adjusted for the CPI | Every six months | 5-year TIPS, October 22: 2.25% coupon at a 2.367% real yield |
| Floating rate notes | 13-week bill index, reset weekly, plus a spread fixed at the first auction | Every three months | 2-year FRN, October 28: spread of 0.038% |
| Bills | No coupon; interest is the gap between price and par | Once, at maturity | Not applicable |
| STRIPS | No coupon; each piece is one payment due on one date | Once, at maturity | Not applicable |
On $10,000 of the October 2026 TIPS, each payment is $112.50 times the index ratio on the payment date; at the 1.00154 ratio of its October 30 issue date that would be $112.67. A floating rate note's quarterly payment adds up each day's accrual at the index plus the spread, divided by 360, so no two payments need match, and Treasury floors that daily accrual at zero. The coupon equivalent in Treasury's daily bill table is a yield for comparing a bill with a note, not a payment, as the T-bill discount rate vs investment rate explains. TIPS explained, Treasury floating rate notes and Treasury STRIPS explained go further into each.
How is the coupon rate different from yield?
The coupon rate is fixed income on par, while a yield measures return on the price actually paid, so the two differ whenever a bond trades away from 100.
| Measure | What it compares | Changes after issue? | October 2026 3-year note |
|---|---|---|---|
| Coupon rate | Annual interest with par | No | 4.875% |
| Current yield | Annual interest with the price | Yes, with every price change | 4.883% at the auction price |
| Yield to maturity | All remaining cash, including the move to par, with the price | Yes, with every price change | 4.932% at auction |
| Par yield | The coupon a new security would need to sell at par | Yes, daily | 3-year: 4.65% on October 30, 2026 |
| APY | A year's interest with compounding, on a deposit | Variable on savings, fixed on a CD | Not applicable |
Of the October note's figures, the coupon is the only one that will never move. By October 30 the 3-year par yield had fallen to 4.65%, so a new 3-year note would have needed only a 4.625% coupon, and at that yield the October note's 4.875% coupon would be worth about 100.6. Compounding is the other trap. A 4.875% coupon paid twice a year and reinvested at the same rate works out to (1 + 0.04875 ÷ 2)² − 1 = 4.934% a year, which is the figure to set beside an APY. The yield to maturity and current yield entries work through both yields, and why bond prices fall when rates rise explains the price swings.
Where do you see the coupon rate?
It appears in Treasury auction results and security records, in the way a bond is described, and indirectly in the par yields on Treasury's daily curve.
- Auction results. Treasury labels the coupon the interest rate and prints it beside the high yield and price, so 4.875% against 4.932% tells you at once that the note sold below par.
- The par yield curve. A par yield is the coupon a new security would need to price at exactly 100; the Treasury yield curve explains how Treasury builds the curve.
- Municipal and corporate bonds. The issuer sets the coupon at sale, with no eighth-point rule. The MSRB says municipal bonds typically pay every six months, while FINRA notes that European bonds traditionally pay once a year, so the divisor in the formula becomes one.
What mistakes do people make with coupon rates?
The most common is treating the coupon rate as the return, which also depends on the price paid and on how each coupon is reinvested.
- Expecting a reopening to pay today's rate. A reopened issue keeps its first coupon. The 5.125% bond sold again in October 2026 went for 92.889131 instead of getting a higher coupon.
- Prorating a full coupon by days. Every full payment is half the annual rate on par, and a weekend delay adds nothing; day counts matter only when a bond trades between payment dates.
- Reading a high coupon as a warning sign on a Treasury. A coupon reflects the yields of its first auction. The 5.125% bond of August 2026 and a 0.125% note from 2021 are both backed by the full faith and credit of the US government.