A bond is identified as trading flat of accrued (or simply, trading flat) if the buyer of the bond is relieved from paying the interest (accrued interest) that has accrued since the last payment. A bond is said to be flat when it trades without accrued interest- i.e., the buyer/ holder is not obligated to pay the issuer/ seller an amount more than the agreed price in respect of accrued and unpaid interest).

More specifically, on the settlement date, the buyer must pay to the seller only the agreed upon price, without any interest that may have accrued. The holder of the bond on the record date receives any and all interest payments whenever made. If a record date precedes the settlement date, the seller will receive any interest paid on a bond that is trading flat.

Flat trading may arise from uncertainty regarding whether bondholders will be paid principal or interest as per schedule . There are specific events that may trigger “flat trading” due to the potential inability of an issuer to make timely or full principal or interest payments. Bonds are considered to be trading flat of accrued in any of the following situations: 1) a bond has been assigned a default rating (i.e., officially considered to be in default) and/ or 2) an issuer has announced a failure or inability to pay a coupon and/ or 3) an issuer has announced an intention not to make a payment on an upcoming coupon.