The bond actually earns interest but this interest is rolled up each year (zero coupon). This saves on income tax. When the bond is repaid there is a capital gain. Possibly as it is a bond it may be free of CGT (possibly offshore also). There is not usually a producvt without an associated demand!

those paper bonds that for some reason people buy

1 - where do people buy them?

at a regular ol bank?

2 - a $100 bond costs $50? and when it matures it's worth $100? is that how it works?

3 - i wonder why people buy them,,, they have to keep it safe for years,, isn't easier just to have a savings or an investment account?