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The original issue discount (OID) of a bond is the face value on the bond minus the amount paid for the bond when first issued.
If I purchase a $105 face value bond for $100, I received a $5 OID. If this bond matures in 1 year, I’ll receive a 5% return even without any interest payments. Indeed, bonds with an OID often pay little or no interest: the OID itself is the attractive feature of the bond. Such bonds are less sensitive to interest rate fluctuations. These bonds may be risky, OID can indicate that the issuer is in financial trouble.
Related Links
Investopedia’s article on original issue discounts
Wikipedia’s article on original issue discounts
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