Trading Ex Interest
Of course, every rule has its exceptions. Some bonds do trade flat, meaning that the bonds do not factor accrued interest into the equation. A flat bond may be a zero coupon bond, where interest payments do not apply. Bonds that settle on the same day that interest is paid also trade at the clean price.
A trickier scenario occurs when securities trade flat because issuers are financially strapped or in default. In this case, an issuer will suspend interest payments, leaving owners and prospective buyers in doubt as to whether they will ever see an interest payment again. A buyer would be foolish to pay the seller for accrued