Clean price, dirty price and accrued interest - how to read settlement

In bond markets, clean price shows the bond value without accrued interest. That makes quotes easier to compare, because the price does not mechanically rise every day as coupon accrues. Settlement, however, uses dirty price: clean price plus accrued interest.

Accrued interest is the part of the coupon economically owed to the seller for the period from the previous interest date to settlement. The buyer pays it in the price and later receives the full next coupon from the issuer. Without that mechanism, selling just before a coupon date would be unfair to the seller.

Example: a bond with PLN 1,000 nominal is quoted at a clean price of 98.50%, so one bond's clean value is PLN 985.00. If accrued interest is PLN 27.40, the dirty price is PLN 1,012.40, or 101.24% of nominal. Brokerage fees and settlement details may still apply.

Dirty price matters most over short horizons and when buying close to coupon date. A clean quote may look attractive, but a large part of cash paid in the transaction can go to the seller as accrued interest. Tax and the next coupon date then affect the actual net result.

When comparing offers, check clean price, accrued interest, settlement date, next coupon date and expected after-tax yield together. Clean price alone is not enough to assess how much cash you need and how quickly the investment starts earning economically.