Bond Settlement Cycles and Value Dates

When two counterparties agree to trade a bond, the trade date (T) and the settlement date — the "value date" when cash and the bond actually change hands — are usually not the same day. US Treasuries typically settle T+1, most corporate and municipal bonds settle T+1 or T+2 depending on the market, and some sovereign or emerging-market bonds settle further out, T+3 or more. Whatever the gap, the buyer's cash payment on the value date includes the bond's clean price plus accrued interest calculated up to (but not including) that value date, not the trade date.

This distinction has real consequences: if a trade is done on a Thursday for T+2 settlement, the value date lands on a Monday (skipping the weekend), and the accrued interest owed jumps to reflect three extra calendar days, not two. Settlement conventions also determine which party bears the risk of a coupon payment or credit event that falls between trade date and value date, which is why bond confirmations always specify the value date explicitly rather than leaving it implied by trade date alone.