They are also appropriate for investors who want to lock in a guaranteed yield for a fixed time frame, add diversity to a portfolio that consists primarily of growth investments, or capitalize on an expected decline in interest rates. Since zeros pay no interest, you never have to worry about reinvesting interest payments, as you would with other bonds. Moreover, you can sell zeros at any time. The amount you receive before maturity may be more or less than your original investment because of changing rates and market conditions. Different Types of Zeros Zero-coupon bonds are issued by the U.S. government, corporations, and municipalities.
Corporate zeros offer the highest yields.
U.S. government zeros offer the most safety, because they are backed by the full faith and credit of Uncle Sam. No security issued by the U.S. Government has ever defaulted or delayed payment. Income from government securities is subject to federal income tax. Income from corporate securities is subject to federal and state income taxes. As with any investment, you should talk with your financial advisor.