Clean and Dirty Bond Prices Explainer
A clean bond price excludes interest accrued since the last coupon payment. A dirty price, also called the full price, adds that accrued interest. Dealers and market data often quote clean prices because they make underlying price movements easier to compare across dates.
At settlement, the buyer generally pays the full price. The accrued component compensates the seller for the part of the coupon period during which the seller owned the bond. The amount depends on coupon rate, face value, elapsed time, day-count convention, and settlement date.
Even when market yields do not change, the dirty price usually rises as interest accrues and drops when the coupon is paid. The clean price removes most of that mechanical pattern, which helps analysts see movements caused by rates, credit spreads, or liquidity rather than the calendar.
Quotation practices can vary by instrument and market. Defaulted bonds may trade flat, and some transactions use different interest-entitlement rules. Investors should ask whether a displayed price is clean or full, then include commissions and other charges when estimating the actual cash required and effective yield.
It highlights market-value changes apart from the coupon clock.
Many bond quotations use this convention.
It normally equals clean price plus accrued interest.
That is closer to the cash exchanged.
Accrued interest builds and then resets after payment.
Instrument-specific exceptions must be checked.
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