Why Bond Bid Quotes Usually Match Clean Prices

Summary

The document explains why a bond’s best quoted bid can equal its clean price. Clean prices exclude accrued interest, while dirty prices include it; most bonds are quoted using the clean-price convention. This makes equality between a quoted bid and a clean price ordinary when both data fields reflect that convention, rather than evidence that accrued interest has been overlooked.

The answer identifies two exceptions: distressed bonds expected to default may trade on a recovery basis, and some foreign markets conventionally quote bonds dirty. It applies this explanation to a data set in which the fields match across many bonds and dates, but presents the interpretation as a likely reading of the vendor’s fields, not a confirmed definition. The practical caveat is that field meanings depend on the data provider, so users should verify how the source defines its quoted bid and clean-price columns before relying on them.

Key ideas

• Most bonds are quoted at clean prices, excluding accrued interest.
• Dirty prices include accrued interest and are used in some markets or for some distressed bonds.
• A quoted bid matching a clean-price field can reflect the market’s quoting convention.
• Data-provider field definitions should be confirmed before interpreting bond prices.

Tags

# The similarity between a bond's quoted bid price and its clean price?


# The similarity between a bond's quoted bid price and its clean price?












Is the Best Quoted Bid Price the same as the Clean Price for bonds? I understand that the Clean Price is the Dirty Price less Accrued Interests, however, I am a bit confused of why the Bid Price = Clean Price in every single case. Can anyone help me understand this or make sense of it?

The data is from Thomson Reuters Datastream. The spreadsheet in the picture shows 2 bonds for a period of 2 weeks, but I see the "bid price" = "clean price" occurring for another 200+ bonds over 5 years.

Thank you!

## Answer by Dimitri Vulis (score 2, accepted)

https://quant.stackexchange.com/a/50410

The quoting convention for almost all bonds is clean (without accrued) rather than dirty (with accrued, all-in). Generally, bonds are quoted dirty in two cases:

1 A distressed bond that's expected to default (after default it trades on recovery)

2 In some foreign markets, it's just a market convention that all bonds are quoted dirty. (For example Brazil NTNs or Argentine bodens).

So.. I would interpret this Reuters data to mean that one column is the best bid using the market convention and the other column is the corresponding clean price (which is the same, except for rare cases when the bond is quoted dirty). You're probably better off asking Reuters tech support whether this is what they mean.

Shown 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.