When bonds are originally issued, they are sold as par, premium, or discount bonds. A bond’s par value is the same as its face value, which is the amount the bond issuer will pay to investors when the bond reaches maturity.
The chart below shows a bond issuance with five maturities that are sold as either par bonds (2026), discount bonds (2027, 2028), or premium bonds (2029, 2030):
Example:
Suppose an agency needs $1,000,000 to fund maintenance expenses. To fund the expense, the agency plans to sell 10-year bonds with a face value of $1,000,000 at a coupon of 3.00% to yield approximately 4.24%. In the current market, based on the coupon and yield, the price of the bond would be $90 per $100 face value (i.e., a discount bond), producing only $900,000.
Since the agency needs $1,000,000, they will actually have to sell $1,115,000 of face value of bonds to offset the discount on the bonds in order to receive $1,000,000 in cash to fund the expense.
Bonds are sold as either par, premium, or discount bonds. Whether a bond is issued as a par, premium, or discount bond depends on the coupon rate of the bond compared to what the yield on the bond is.