Tax on redemption discount
The difference between par and the purchase price is treated as income at redemption and taxed.
How to read the number
A bond bought below par therefore creates a tax charge even where there is no coupon at all.
When the metric lies
Discount issues and deeply cheapened bonds look better on pre-tax yield. After withholding the gap against coupon-paying bonds narrows, and occasionally reverses.
Also known as: discount taxation at maturity