Here is a recent article from the Bond Buyer taking about zero coupon bonds. The analyst from Citibank has recently published a report about why zero spreads will tighten in a rising rate environment.

My two cents:

1) Most outstanding zero issuance is from CA school districts in the form of ad valorem go bonds. Many of the ananlysts including some quoted in the article dont understand that these are some of the best credits in CA. Astute investors do understand this and this explains some of the tightening.

2) The amount of zero issuance going forward will be drastically reduced. Recent legislation and press will curtail most CA issuance which represent 90% of the market.

3) In a rising rate environment, these structures already have a yield cushion, convexity helps to dampen price depreciation, and the yield curve tends to flatten, making these structures theoretically more valuable relative to coupn bonds.