How are Z-bonds classified?

Z-bonds, also known as zero-coupon bonds, are characterized by their structure of not paying periodic interest. Instead, they are issued at a discount to their face value and mature at a specific date, at which point the investor receives the full face value of the bond. The absence of periodic interest payments means that Z-bonds do not generate cash flow while they are held, which can make them particularly appealing to investors looking for a lump sum payment at maturity, especially for long-term investment strategies.

In understanding Z-bonds, it's important to note that, unlike traditional bonds that pay periodic interest (semi-annual coupon payments), Z-bonds accrue interest over time, which is reflected in the difference between the purchase price and the face value received at maturity. This structure highlights their unique nature within the fixed-income investment category. The other classifications provided in the options distinctly reflect different fixed-income characteristics that do not apply to Z-bonds.