I'm not sure there's a significant difference in practice, but technically the $50 would be part of the bond's debt principal, not interest.
A bond with a face value of $1000 means the government has $1000 of debt regardless of what is paid for the bond.
The coupon payments represent the "interest" on that debt - the $20 coupon means the government is paying $20 of interest per year.
Paying below face value doesn’t make the difference "interest." It simply means investors are buying the bond at a discount, so the government receives less cash upfront in exchange for repaying the full $1,000 at maturity. Bonds differ from traditional loans in that their market price can fluctuate, but the debt obligation remains fixed at the face value.
In practice, the government's accounting labels the discount as an "interest expense", so it still gets captured as interest in the budget.
That's a reasonable interpretation from the Treasury's perspective. But if you ask the IRS, I've realized all $70 as interest income ($50 as OID, which they consider a form of interest).
(And yes, coupons pay 2x yearly, but they are quoted on an annual basis; I would receive two $10 payments.)
Yes, secondary sellers can claim capital losses. But they typically go for a discount even at the primary Treasury auction, so there's still more than $20 of total profit after netting across holders.
A bond with a face value of $1000 means the government has $1000 of debt regardless of what is paid for the bond.
The coupon payments represent the "interest" on that debt - the $20 coupon means the government is paying $20 of interest per year.
Paying below face value doesn’t make the difference "interest." It simply means investors are buying the bond at a discount, so the government receives less cash upfront in exchange for repaying the full $1,000 at maturity. Bonds differ from traditional loans in that their market price can fluctuate, but the debt obligation remains fixed at the face value.
In practice, the government's accounting labels the discount as an "interest expense", so it still gets captured as interest in the budget.