The interest rate, which the issuer pays to the bond holders. Usually this rate is fixed throughout the life of the bond. Hence bonds are often called fixed income instruments. The coupon can also be fixed relative to a varying money market index, such as LIBOR. More complicated coupons can also be defined which are called exotic.

The interest rate is affected by many factors, including current market interest rates, the length of the term and the credit worthiness of the issuer.

The name coupon originates from when physical bonds were issued which had coupons attached to them. On coupon dates, the bond holder would give the coupon to a bank in exchange for the interest payment.