Ex-dividend period

Certain classes of bonds, for example US Treasuries and Eurobonds, do not have an ex-dividend period and therefore trade cum dividend right up to the coupon date. 

Market Coupon Frequency Day Count Basis Ex-dividend Period... 

Exhibit 1.8 shows the conventions (coupon frequency, Day count basis, and ex-dividend period) for the the government bond market of major European countries. 

Swedish bonds, like Australian and UK bonds, have a short period before the coupon is paid where the buyer will not be entitled to receive that coupon. In Sweden this ex-dividend period is five working days, during which the accrued interest will be negative. 

Gilts are registered securities. All gilts pay coupon to the registered holder as at a specified record date the record date is seven business days before the coupon payment date. The period between the record date and the coupon date is known as the ex-dividend or ex-div ( xd ) period during the ex-dividend period the bond trades without accrued interest. This is illustrated in Exhibit 9.1. 

Bonds trade either ex-dividend or cum dividend. The period between when a coupon is announced and when it is paid is the ex-dividend period. If the bond trades during this time, it is the seller, not the buyer, who receives the next coupon payment. Between the coupon payment date and the next ex-dividend date the bond trades cum dividend, so the buyer gets the next coupon payment. 

Accrued interest compensates sellers for giving up all the next coupon payment even though they will have held their bonds for part of the period since the last coupon payment. A bond s clean price moves with market interest rates. If the market rates are constant during a coupon period, the clean price will be constant as well. In contrast, the dirty price for the same bond will increase steadily as the coupon interest accrues from one coupon payment date until the next ex-dividend date, when it falls by the present value of the amount of the coupon payment. The dirty price at this point is below the clean price, reflecting the fact that accrued interest is now negative. This is because if the bond is traded during the ex-dividend period, the seller, not the buyer, receives the next coupon, and the lower price is the buyer s compensation for this loss. On the coupon date, the accrued interest is zero, so the clean and dirty prices are the same. 

Certain classes of bonds—U.S. Treasuries and Eurobonds, for example —do not have ex-dividend periods and therefore trade cum dividend right... 

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