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).

RELATED TERMS
  1. Clean Price

    The price of a coupon bond not including any accrued interest. ...
  2. Dirty Price

    A bond pricing quote referring to the price of a coupon bond ...
  3. Accrued Interest Adjustment

    The extra amount of interest that is paid to the owner of a convertible ...
  4. Bond

    A debt investment in which an investor loans money to an entity ...
  5. Deferred Interest Bond

    A debt instrument that pays interest only upon maturity. Unlike ...
  6. Bond Yield

    The amount of return an investor will realize on a bond. Several ...
Related Articles
  1. Investing

    What's Accrued Interest?

    Accrued interest has two meanings. In accounting, it is interest that has been earned, but the time for payment has not yet occurred.
  2. Financial Advisor

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
  3. Investing

    Investing in Bonds: 5 Mistakes to Avoid in Today's Market

    Investors need to understand the five mistakes involving interest rate risk, credit risk, complex bonds, markups and inflation to avoid in the bond market.
  4. Investing

    How To Choose The Right Bond For You

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  5. Investing

    Corporate Bond Basics: Learn to Invest

    Understand the basics of corporate bonds to increase your chances of positive returns.
  6. Investing

    What is a Dirty Price?

    The dirty price of a bond includes the present value of all future cash flows.
  7. Investing

    The Basics Of Bonds

    Bonds play an important part in your portfolio as you age; learning about them makes good financial sense.
  8. Investing

    5 Reasons to Invest in Municipal Bonds When the Fed Hikes Rates

    Discover five reasons why investing in municipal bonds after the Fed hikes interest rates, and not before, can be a great way to boost investment income.
  9. Investing

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  10. Investing

    Corporate Bonds: Advantages and Disadvantages

    Corporate bonds can provide compelling returns, even in low-yield environments. But they are not without risk.
RELATED FAQS
  1. How do you find accrued interest on a bond?

    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?

    Find out what it means when a bond is quoted at "100-plus accrued interest," and why it might be a more accurate reflection ... Read Answer >>
  4. Do long-term bonds have a greater interest rate risk than short-term bonds?

    The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as ... Read Answer >>
  5. What is the difference between accrued revenue and accrued interest?

    Find out about the difference between accrued revenue and accrued interest and how both of these concepts are used by businesses ... Read Answer >>
Hot Definitions
  1. Quadruple Witching

    The expiration date of various stock index futures, stock index options, stock options and single stock futures. All stock ...
  2. Co-pay

    A type of insurance policy where the insured pays a specified amount of out-of-pocket expenses for health-care services such ...
  3. Protectionism

    Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local ...
  4. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  5. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  6. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
Trading Center