Ex-Coupon Bonds Explained: 2025 Guide with Pricing Insights

What Are Ex-Coupon Bonds?

An ex-coupon bond is a fixed-income security traded without including the next scheduled interest or dividend payment. When you buy or sell such a bond, the upcoming coupon payment does not transfer to the new owner. This means investors purchasing an ex-coupon bond will not receive the next coupon, and the bond’s price reflects this adjustment.

Also known as ex-interest bonds, they are similar to stocks trading ex-dividend, where the dividend is excluded from the stock price.

Key Points to Remember

• Ex-coupon refers to bonds or preferred stocks trading without the next interest or dividend payment.
• These securities usually sell at a discounted price to compensate for the missed coupon payment.
• In the U.S., bonds often trade cum-coupon (with accrued interest included), quoted as a 'dirty price,' whereas many European markets trade ex-coupon bonds quoted with a 'clean price.'

How Does Ex-Coupon Work?

Bondholders receive coupon payments on predetermined dates set at issuance, which can be annually, semi-annually, quarterly, or monthly. The coupon is paid to whoever is the registered bondholder on the record date.

If an investor buys a bond between coupon payments, they receive the next coupon but must compensate the seller for accrued interest earned before the sale. This accrued interest is factored into the bond’s transaction price.

Understanding the Ex-Coupon Date

The ex-coupon date marks the first day a bond trades without the upcoming coupon payment. If you purchase the bond on or after this date, the seller retains the right to the next coupon, and the bond price excludes that payment.

To receive the upcoming coupon payment, investors must buy the bond before the ex-coupon date.

Practical Example

Consider a bond paying coupons semi-annually on June 1 and December 1. If sold on October 1, the buyer will receive the December 1 coupon but must reimburse the seller for interest accrued from June 1 to October 1. This accrued interest is embedded in the bond’s purchase price.

Ex-Coupon vs. Cum-Coupon Pricing

The purchase price of bonds can be quoted either cum-coupon or ex-coupon. In the U.S., bonds typically trade cum-coupon, meaning the price includes accrued interest, known as the dirty price.

Conversely, many international markets trade bonds ex-coupon, where the price excludes the upcoming coupon (clean price). Buyers pay only the agreed price and miss out on the next coupon, which the seller collects. However, the seller compensates the buyer for accrued interest during the seller’s holding period before the sale.

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