Accrued Interest on Government and Agency Securities

What this video covers

• Why a buyer pays accrued interest to a seller at settlement, and how the full next coupon payment reimburses that upfront amount
• The exact settlement-to-coupon timeline: buyer pays through the settlement date, not including it, then keeps only the interest for days actually held
• Why the buyer is not giving the seller a gift: the net economic effect of the reimbursement flow
• When actual/actual applies: strictly Treasury notes and bonds, with real calendar day counts that vary by month
• When 30/360 applies: agency debt, mortgage-backed securities (MBS), collateralized mortgage obligations (CMOs), corporates, and municipals
• Why Treasury bills have zero accrued interest: discount instruments with no coupon generate nothing to accrue
• How the exam baits you into mixing up day-count conventions between Treasury and agency securities