A bond whereby the issuer is allowed to defer coupon interest for a specified period of time. During the deferred-coupon period, there is no coupon payment. At the end of that period, however, a lump sum will be paid at some specified date and coupon payments will be made (usually semiannually) until maturity. This bond combines the features of standard bonds, step-up bonds, and zero-coupon bonds. For example, a 10-year bond may have a provision that coupon interest must start five years from the date of issuance. In other words, this bond has a zero-coupon for the first five years, and then a specific coupon (say 8%) for the remaining five years. Because of the deferred-coupon period, this bond is conventionally priced at a deep discount to par, though it is not equal in magnitude to that of a zero-coupon bond. The deferral period helps issuers reduce their cash outflows and thus rein in the risk of financial distress.

Examples of bonds belonging to the class of deferred-coupon bonds include reset bonds, deferred-interest bonds, extendable reset bonds, and payment-in-kind bonds.