Flat trading has different meanings in different contexts. In relation to bonds, it refers to the status of a bond if the issuer fails to meet its coupon payment obligation as per schedule. Flat trading leads to a situation where accrued interest is set to zero. Generally speaking, a flat trading reflects a situation where a market or security is neither advancing nor declining in price or value.
In another context, it refers to markets in which profits are said to be flat- i.e., opportunity for profits is very much limited. It is a situation where a market participant trades in the market without making a profit or taking a loss.
Examples of bonds that trade flat are income bonds and bonds in default.
