Accrued Market Discount

The bonds in the oil well driller looked just fine when they were issued by the company right around par value of $1,000 with a 6% coupon. But that earthquake and tsunami didn't mesh well with the angry sperm whale invasion, and when the platform came loose, bad things happened to the bonds. They cratered to $600 and sat there. It was then that you bought them.

The flavor of bond you purchased comes due in six years, and it carries what's called an accrued market discount. Each year, that bond will come closer to owing its full principal, and you as the holder may have to pay the gain as that market discount comes closer to par value. Note that, if the bonds are truly in danger of not paying, then you don't pay tax, and the bond likely sits in the doldrums at some very low price. That delta between what you paid for the bond and its expected eventual principal return value of $1,000 par is the accrued market discount.