Accrued Interest on Government and Agency Securities

What this video covers

• Why accrued interest exists when bonds trade between coupon dates, and why the buyer pays the seller at settlement
• How the buyer is mathematically reimbursed when collecting the full next coupon, making the net effect perfectly balanced
• The 30/360 day-count convention: 30-day months and 360-day year for agency debt, mortgage-backed securities (MBS), collateralized mortgage obligations (CMOs), corporate bonds, and municipal bonds
• The actual/actual day-count convention for Treasury notes and Treasury bonds, and why February yields a different calculation than July
• Why Treasury bills (T-bills) have zero accrued interest because they are discount instruments with no coupon to accrue
• How to spot exam traps implying the buyer gives the seller a gift or asking you to calculate accrued interest on a T-bill