Coupon rate is a combination of:
- RBA rate - basically considered the "risk free" rate, plus,
- expectations about future interest rate moves - usually determined by the current bond market pricing of other bonds,
- expectations about inflation - this is also largely factored into the current bond market pricing,
- additional add-ons for risk - this is why bonds issued by companies have a higher coupon than government bonds - riskier the company, the higher the risk premium, and
- a need to ensure the bonds are sufficiently attractive to investors to ensure they are all bought.
It is set by the issuer no doubt after receiving professional advice from an advisor/the bond underwriter (corporate bonds are usually underwritten) at considerable expense.
