Nestor Sulikowski

There are 3 dates that are important in determining the cash flows and accrued interests of a US Treasury Note/Bond:

1. Dated Date: The date from which to start counting accrued interests
2. First Coupon Date: The date of the first coupon payment
3. Maturity: you guessed right,.. the date in which it matures.

There is also the “Issue date”, which is the first settlement date for the newly auctioned securities. Usually the Issue Date is the same as the Dated Date, and the Dated Date happens 6 months before the First Coupon Date. However there are exceptions which I describe below. Note that the accrued interest before the Dated Date is always 0.

Depending on the Dated Date and the First Coupon Date, a Note/Bond can fall in one of the following cases.

• Normal First Coupon: The Dated Date falls exactly 6 months before the First Coupon, and all the coupons pay the same amount. This is the case for most of the Notes/Bonds. The Accrued Interest between coupons is calculated proportionally.

• Short First Coupon: There are less than 6 moths between the Dated Date and the First Coupon. Therefore the First Coupon is proportionally smaller. The Accrued Interest between coupons is calculated proportionally. For the first coupon, we assume a coupon payment 6 months before the First Coupon (indicated with dotted lines in the figure). This is not a real coupon payment, but an artifact for the calculating accrued interests.

• Long First Coupon: The are more than 6 months between the Dated Date and the First Coupon. Effectively, this is equivalent to skipping one coupon. The skipped coupon is indicated in the figure as the “Nominal” coupon. The size of the “Nominal” coupon is calculated as if it were a short first coupon, and then added to the First Coupon. The Accrued Interest before the first “Nominal” coupon will be calculated as if it were a short first coupon bond. Between the “Nominal” coupon and the First Coupon it will be proportional, plus the “Nominal” coupon.