Bond Coupon Dates on Weekends: Coupon Size and Accrued Interest
Summary
The answer explains how a weekend-adjusted payment date usually affects the timing of a bond coupon without changing its amount. For a regular semiannual period, the coupon is generally based on the scheduled coupon period and remains the regular half-year payment, even if cash is paid on the following business day. Irregular first or final periods are exceptions: their coupon amounts use the applicable day-count fraction. The response also notes that some securities follow an exact-accrual rule, with payments based on actual days in each period.
Accrued interest is calculated from the prior scheduled coupon date, without adjusting that date for a weekend or holiday, to the settlement date, which is adjusted under the applicable calendar convention. The example gives accrued interest just before and after the scheduled coupon date under 30/360. These conventions are described as typical rather than universal; security terms, day-count rules, and settlement conventions can change the calculation.
Key ideas
- A regular coupon amount is usually unaffected when its payment date moves to a business day.
- Irregular first and final coupon periods generally use a day-count fraction to determine the payment.
- Accrued interest runs from the previous scheduled coupon date to the adjusted settlement date.
- Some instruments use actual days in each period, so the bond’s terms and market convention matter.
Tags
Full text
# What happens to accrued interest and coupon payment if coupon date is weekend?
# What happens to accrued interest and coupon payment if coupon date is weekend?
Say a 5% bond using 30/360 convention, 2 coupons per year. Last coupon payment was on 2016-04-01. Now 2016-10-01 is weekend and the coupon is paid on 2016-10-03. Is this coupon 2.5 or slightly more than 2.5?
What is accrued interest on 2016-09-30? On 2016-10-03?
## Answer by Helin (score 7, accepted)
https://quant.stackexchange.com/a/30420
For the vast majority of bonds, as other commenters have pointed out, coupon sizes are generally not affected by bad days (i.e., holidays and weekends), so for a bond with semi-annual coupon payments, the coupon size will (almost) always be as simple as $c/2$. Some exceptions are:
- Bonds with irregular first coupon periods: The first coupon period spans from the dated date (aka the first interest accrual date) and the first coupon date. If this period is not exactly a full coupon period (can be longer or shorter), then the coupon size must be calculated as $\text{DCF} \times c$, where $\text{DCF}$ is calculated as the day count fraction between the dated date and the first coupon date (usually NOT adjusted for holidays/weekends) using the correct day count convention.
- Bonds with irregular last coupon periods: Similarly, the last coupon period, spanning from the penultimate coupon date and the maturity date, may not be a full coupon period. In these cases, the coupon size is also calculated as $\text{DCF} \times c$, where $\text{DCF}$ is calculated as the day count fraction between the penultimate coupon date and the maturity date (neither of which is bad-day adjusted, most of the time).
- Bonds whose cashflows that follow the "exact accrual rule": These are quite rare and the only ones that come to mind are Thailand government bonds.** The cashflows for these bonds are based on the actual number of days for every coupon period.
As to accrued interest, it should always be calculated using the day count fraction between the previous coupon date (NOT bad-day adjusted) and the settlement date (bad-day adjusted).
For the example you cited, the coupon size should be 2.5, paid out on October 3. The accrued interests should be:
- For settlement on 9/30/2016: $179 / 360 \times 5 = 2.486111111111111$;
- For settlement on 10/3/2016: $2 / 360 \times 5 = 0.02777777777777778$.
** Another exception is term CDs. Mayle (1993), a standard reference, notes that "The interest flows for a term CD differ from those of any other periodic security in that the amount of each flow is determined by the number of days in its period as opposed to the number of periods per year."
## Answer by sgdata (score 1)
https://quant.stackexchange.com/a/30419
Doing the calculation on the FINRA calculator gives an estimate -
Assuming purchase date of 2016-04-01, 2016-09-30 would be a hold period of 179 days:
- Accrued Interest 2.486 %
- Value of Accrued Interest $24.86
And 2016-10-03 would be a holding period of 182 days:
- Accrued Interest 2.528 %
- Value of Accrued Interest $25.28
Granted, this does not account for the settlement period of the bond (which will have to be included when traded) which will raise your final accrued interest to 184 holding days:
- Accrued Interest 2.556 %
- Value of Accrued Interest $25.56Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.