Accrued interest definition

Interest accrues on a bond from and including the last coupon date up to and excluding what is called the value date. The value date is almost always the settlement date for the bond, or the date when a bond is passed to the buyer and the seller receives payment. Interest does not accrue on bonds whose issuer has subsequently gone into default. Bonds that trade without accrued interest are said to be trading flat or clean. By definition therefore,... 

From this it is easy to derive the definition of true yield, which is the discount rate that equates a bond s current market price to the present value of its cash flows. The bond s market price is its dirty price—that is, the price including accrued interest. This is represented in (16.4), where PV is replaced by P, representing the clean price plus AI, representing accrued interest. 

By definition, Jumbo Pfandbriefe are always plain vanilla structures Jumbos are fixed-interest bullet bonds, the coupon on which is payable annually in arrears. The calculation of interest accrued is done uniformly using the actual/actual method in line with international practice. While this standardisation helps to enhance the transparency of the market, it inhibits the ability for these issues to be targets to an investor s specific needs and this is where the structured issues come into their own. 

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