What is a 'Flat Bond'

A flat bond is a debt instrument that is sold or traded without accrued interest, the fraction of the bond's coupon payment that the holder earns between periods of bond payments. There are three possible reasons that a bond would not have any accrued interest:

  1. No interest is presently due on the bond according to the date of sale and terms of the bond's issue.
  2. The bond is in default.
  3. The bond settles on the same date as the interest is paid and therefore no additional interest has accrued beyond the amount already paid out.

BREAKING DOWN 'Flat Bond'

If a bond price is referred to as "dirty" it means that the interest accrued since the last coupon payment is included in the price of the bond. If it is referred to as "clean," the price does not include any accrued interest.

Corporate and municipal bond issuers assume a 30-day month and a 360-day calendar to calculate the accrued interest on a bond. However the accrued interest on government bonds is usually determined on the basis of the actual calendar day from date of issuance (called the actual/actual day count).

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RELATED FAQS
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    Learn how to determine the accrued interest on a bond. The price in the secondary market reflects the accrued interest the ... Read Answer >>
  2. What is accrued interest, and why do I have to pay it when I buy a bond?

    A bond represents a debt obligation whereby the owner (the lender) receives compensation in the form of interest payments. ... Read Answer >>
  3. What does 100-plus accrued interest mean?

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  4. Do long-term bonds have a greater interest rate risk than short-term bonds?

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