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I'm learning about fixed income for the first time and my understanding is that the value of a bond depends on three major variables:

  1. The face value
  2. The time to maturity
  3. The coupon rate a.k.a. the interest rate paid semi-annually or annually

That's fine, but I also understand that they are traded on the secondary market. Making an analogy to stocks and dividends distributions, is it the case that the market value of a bond usually goes up before the date when a coupon payment is made?

JoeTaxpayer
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Paul Razvan Berg
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2 Answers2

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Well, sort of. The quoted price in the secondary market is for the bond itself, but when you buy the bond you pay that price plus accrued interest. So the closer you are to the payment date, the higher the total cost.

Pete Becker
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Unlike Stocks or ETFs where there is a hard cutoff of dividend ("Ex-Dividend"), the buyer of the Bonds has to pay "Accrued Interest" to the seller if the Bonds were purchased between two payment dates. The Accrued Interest is prorated calculation is accurate to 1 day.

base64
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