The key to understand is that if you buy a bond in-between the issue date and the interest payment date (when payments are due) you end up paying for
1) The bond at the market rate which ends up being at a discount or premium
AND
2) paying for the interest that has accrued between the periods.
You are paying in advance for the interest that you will get right back from the issuer in a few months on the interest payable dates.
**Remember that the issuer is ALWAYS going to pay you the same amount of interest based on the face amount and rate that was printed on the bond when it was created**
The issuer is not going to stop and calculate partial interest payable to the millions of bond holders that purchased bonds in-between…
So when you buy the bond in-between dates, you pay HIM upfront for that fractional interest period thats accrued..and you get it right back on the scheduled interest pay dates when the issuer pays the “automatic”, “always the same” quarterly, annually, or semi annually interest payments.
Hope this helps..
I think of creation date as the day the bond coupon was printed (dated date). Printed (dated) date will always be the same..cant change it because its printed in black and white.
Issue date is the day the the bond was sold and the interest rate that is tied to the issue date is the prevailing market rate..what the bond “yields”
Does this help?
FAR - 8/24/2016
BEC -
REG -
AUD -