What is the accrued interest in bond trading?

Accrued interest, as its name implies, is the interest that should be calculated. In the bond market, especially the interest generated from the last interest payment date to the settlement date of the sale and purchase.

In zero-coupon bonds, the amount of interest from the date of issue to the date of settlement; in interest-bearing bonds, the amount of interest included in the principal interest period from the date of interest to the date of settlement; in discounted bonds, because there is no coupon rate, the amount of interest accrued is zero.

In the process of bond trading, there are two cases: full price transaction and net price transaction.

Full-price transaction refers to the bond transaction in which the accrued interest is included in the bond quotation in the bond price, in which the accrued interest refers to the interest accrued on the bond from the last interest payment date to the purchase date.

The net price transaction refers to the transaction carried out at a price that does not contain interest, that is, the quotation of the bond is split from the accrued interest, the price only reflects the change in the market value of the principal, and the interest is calculated on a day-to-day basis at the coupon rate. Bondholders enjoy interest income during the holding period.

At present, net price trading is widely used in the international bond market, and US Treasury bond trading also belongs to this category. Therefore, buyers of treasury bonds still need to pay accrued interest after paying the price of treasury bonds.