Clean Price vs. Dirty Price: What's the Difference?
Bond pricing has a quirk that catches new investors off guard: the price displayed in a quote isn’t always the price actually charged at settlement. The gap has a name, and understanding it prevents an unpleasant surprise.
The short answer
Clean price is a bond’s quoted price without any accrued interest included. Dirty price is the clean price plus accrued interest, and it represents the actual amount a buyer pays to purchase the bond. The two are identical only on a coupon payment date, when accrued interest happens to be zero.
Why bond quotes use clean price
Quoting bonds at their clean price keeps price comparisons simple and consistent. If dirty price were quoted instead, a bond’s displayed price would appear to tick upward every single day between coupon payments as accrued interest builds, purely from the passage of time, even if nothing about the bond’s underlying value changed. That would make it harder to see genuine price movement driven by interest rate shifts or credit changes. Clean price strips out that noise, letting investors compare bonds and track real price movement more clearly.
Why dirty price is what actually gets paid
Even though clean price is the number typically displayed, a buyer purchasing a bond between coupon dates owes the seller for the interest that has accrued since the last payment. Add that accrued interest to the clean price, and the total is the dirty price — sometimes also called the full price or invoice price. This is the actual cash amount that changes hands to settle the trade. Skipping this step and assuming the clean price is the full cost is a common point of confusion for people newer to bond investing.
A simple way to picture it
Think of clean price as the “sticker price” of the bond itself, and dirty price as the sticker price plus a prorated share of interest that’s technically owed for time already passed. On the day a coupon is paid, accrued interest resets to zero, so clean and dirty price briefly match. From that point forward, dirty price gradually pulls ahead of clean price each day until the next coupon payment, when the cycle resets again.
Where this connects to other bond concepts
- Coupon rate versus yield. The coupon rate that generates accrued interest is fixed at issuance, but yield reflects the price actually paid — meaning dirty price, not just clean price, ultimately factors into a true yield calculation.
- Par value versus market value. Clean price is closely tied to a bond’s market value, which moves separately from the mechanical, day-by-day buildup of accrued interest.
- Settlement mechanics. Understanding that a trade settles at dirty price helps explain why the cash required at purchase can be slightly more than a quoted price suggests.
The takeaway
Clean price is what’s typically displayed; dirty price is what’s typically paid. The difference is simply accrued interest, a mechanical and predictable adjustment rather than a sign of anything unusual happening with the bond. Knowing which price is being referenced in a given context, a quote versus a settlement, avoids confusion about what a bond purchase actually costs.