Bond Clean Price vs. Dirty Price: How Accrued Interest Changes the Invoice

Bond prices are often quoted as a percentage of face or par value. Under that convention, a quote of 98.50 means $98.50 for each $100 of face value; on $10,000 face, the quoted price is $9,850. FINRA's bond guide explains that bond quotes are typically expressed as a percentage of par. The quoted price is useful for comparing the bond's market value, but it may not be the full cash amount needed to settle a trade between coupon dates.

For an ordinary interest-paying bond trading between scheduled coupon dates, settlement commonly includes two pieces: the quoted bond price and accrued coupon interest. The clean price is the price component before accrued interest. The dirty price, also called the full price, adds the interest accrued under the applicable convention. If the clean quote is in points per $100 par, convert it to dollars before adding an accrued-interest amount stated in dollars.

“Clean” describes the treatment of accrued interest; it does not mean that brokerage compensation or every trading cost has been removed. Likewise, a dirty price is not automatically a statement of every possible account debit. It is the bond price plus accrued interest under the quote and settlement convention. Confirm whether a screen shows clean price, full price, or a final transaction amount before using the number.

A coupon accumulates over its interest period even though the issuer pays it only on scheduled dates. If a bond changes hands between those dates, the seller has held it for part of the current coupon period. In the usual settlement calculation for an interest-paying bond, the buyer pays an accrued-interest amount to compensate the seller for that elapsed portion, subject to the security's rules and any special trading condition.

FINRA puts the secondary-market transfer plainly in its bond guide: “The buyer compensates you for this portion of the coupon interest.” The same explanation says that the amount is generally added to the bond's contract price. This payment is part of settling the security's coupon cash flow; it is not a fee charged by the issuer or broker, and it is not extra income created for the buyer.

The buyer may receive the next full coupon from the issuer because the buyer owns the bond on the payment date. But that cash receipt includes interest that accrued before the buyer acquired the bond. The amount paid to the seller accounts for that earlier accrual. Looking only at the next coupon can therefore overstate the buyer's holding-period interest unless the settlement payment and dates are included in the cash-flow record.

For the ordinary coupon-bond case in this guide, use this relationship:

Dirty or full price = clean price + accrued interest

If the clean quote is stated per $100 of face, first convert it to the bond's face amount:

Quoted clean dollars = clean quote ÷ 100 × face value

Then add accrued interest in dollars. If the confirmation or quote already reports a full price that includes accrued interest, do not add the same accrual a second time. The name of a data field is not enough; check its units, price basis, and settlement date.

This separation makes market movement easier to read. The clean component reflects the bond price used for the transaction, while accrued interest reflects coupon earned under the day-count convention since the relevant prior date. A dirty amount can change as the settlement date moves even if the clean quote stays the same. That mechanical change alone is not a gain in the bond's market value.

Assume a hypothetical bond with $10,000 face value, a 5% annual coupon, and two equal payments per year. Its annual coupon is $10,000 × 5% = $500, so each semiannual coupon is $500 ÷ 2 = $250. This example uses a simple 30/360 assumption: a six-month coupon period is treated as 180 days, and 60 days have accrued by settlement.

Accrued interest = $250 × (60 ÷ 180) = $83.33

At a clean quote of 98.50, the clean dollar price is 98.50 ÷ 100 × $10,000 = $9,850. The dirty settlement amount before fees is $9,850 + $83.33 = $9,933.33. Per $100 of face, the accrued amount is about $0.8333 and the full price is about 99.3333. The bond is still quoted at a clean price of 98.50; the extra $83.33 is the coupon accrual allocated at settlement, not a change in the clean quote.

The units matter. Multiplying 98.50 by $10,000 would overstate the clean price by a factor of 100 because 98.50 is a price per $100 par, not a percentage multiplier for the entire face amount. The accrued-interest calculation also uses the $250 semiannual coupon for the assumed 180-day period, not the $500 annual coupon over those same 180 days.

Continue the same hypothetical. If 60 of 180 days have elapsed at settlement, 120 of the assumed 180 days remain until the next coupon date. Under the same simple assumptions, the buyer's remaining-period coupon accrual is $250 × (120 ÷ 180) = $166.67. The buyer pays $83.33 to the seller at settlement and later receives the issuer's full $250 coupon, so the cash-flow split reflects $83.33 accrued before settlement and $166.67 after it.

This ledger prevents a common misreading: the buyer's $250 coupon receipt is not a $250 return earned only during the buyer's holding period. The $83.33 settlement amount compensates the seller for the earlier portion of the coupon cycle. The clean-price change, any later sale price, tax treatment, and fees affect the buyer's actual return separately.

The accrued amount is also not an additional coupon payment from the issuer. The issuer pays the scheduled coupon once. The trade settlement reallocates the economics between the outgoing and incoming holders according to the dates and convention used. For an actual bond, follow the confirmation and the bond's terms rather than assuming that this illustrative 60/180 split applies.

The example's 60/180 fraction is an explicit simplifying assumption, not a universal market rule. The relevant dates can include the prior coupon date and the settlement date, and conventions specify how calendar days are counted, whether endpoints are included, and how a short or long coupon period is handled. MSRB Rule G-33 prescribes standard calculations for municipal securities and defines accrued interest using the period up to, but not including, settlement under the applicable day-count rules.

Conventions differ across instruments and markets. FINRA's accrued-interest calculator, for example, selects a 360-day year for corporate and municipal bonds and a 365-day year for government bonds. That is a reminder to select the correct bond type and convention, not permission to apply one calculator setting to every security. MSRB Rule G-33 also warns that nonstandard coupon features can make ordinary price and yield settings produce anomalies.

Use the settlement date required by the trade and the bond's terms, not a guessed date based on when an order was entered. Coupon frequency, dated date, first or final coupon length, leap years, weekend or holiday adjustments, and market-specific rules can change the accrual. For a municipal customer trade, MSRB Rule G-15 requires confirmation fields for total transaction money and accrued interest; that rule is specific to its market and does not replace other securities' conventions.

The settlement date can change the invoice even when the clean quote is held constant. In the same hypothetical 30/360 example, move settlement from day 60 to day 90 of the 180-day coupon period. The extra accrual is $250 × (30 ÷ 180) = $41.67. Total accrued interest rises from $83.33 to $125.00, so a clean quote fixed at 98.50 gives a dirty amount of $9,933.33 at day 60 and $9,975.00 at day 90, before fees. This comparison changes only the assumed settlement date to show the arithmetic; it does not mean a trader can choose any settlement date or treat the cash difference as a clean-price gain or loss.

When settlement crosses a scheduled coupon payment, the accrual period resets. Do not continue counting from the old coupon date after the issuer pays the coupon; identify the new period's applicable starting date and calculate under the bond's convention. The day-60 and day-90 comparison above stays within one assumed coupon period and should not be carried across a payment date.

Accrued interest and brokerage compensation answer different questions. Accrued interest allocates the coupon earned over time between holders. A dealer's markup or markdown reflects its compensation when acting as principal; an agent may charge a commission or other disclosed transaction costs. Those costs can be embedded in the quoted bond price or shown separately, depending on the market, trade, and confirmation.

The MSRB's municipal bond pricing guide explains that a municipal bond's quoted price is based on par and that “some accrued interest may be applied to the trade” depending on the trade date. It also distinguishes dealer compensation from the bond's accrued coupon. In the hypothetical invoice above, $9,933.33 is the clean bond price plus accrued interest before separate fees or charges. It does not guarantee the exact amount an account will be debited if a broker's price adjustment, commission, or another charge applies.

“Clean” therefore does not mean “fee-free,” and “dirty” does not mean “all-in with every account charge.” Read the trade confirmation's price basis, accrued-interest amount, total transaction amount, and any commission or fee fields. If a displayed price already includes accrued interest, adding the accrual again double counts it.

This explanation focuses on an ordinary coupon bond bought or sold in the U.S. secondary market between payment dates. Zero-coupon securities, defaulted or flat-traded bonds, irregular coupons, and transactions with special terms can use different treatments. MSRB rules identify cases in which accrued interest is not shown in the same way, so do not extend the simple formula beyond its stated scope.

Treasury reopenings are a separate, narrower case. When the Treasury issues more of a previously issued security, the reopened security can have a different issue date from its original dated date. TreasuryDirect's guide to buying marketable securities says that in this situation accrued interest “becomes part of the purchase price” and is returned as part of the first regular interest payment. That primary-issuance treatment is not the same question as allocating accrued coupon interest between a seller and buyer in a secondary-market trade.

Before checking a transaction, record the face amount, clean quote and units, coupon rate and payment frequency, prior coupon date, settlement date, day-count convention, accrued amount, and whether the displayed total already includes accrual. Then verify the confirmation's commissions, markups, markdowns, and other charges separately. For the different calculation used in physically delivered futures, see Treasury futures delivery invoice amount; for primary Treasury auction fields, see how to read Treasury auction results.