A bond is a type of fixed-income security that represents a loan made by an investor to the issuer or borrower. They have several important dates that can impact when money changes hands between the investor and the borrower.
The sale date
This is when the investors commit to buying a bond, and the coupon rate is locked in. No money changes hands here — investors simply affirm their commitment to purchasing the bond.
The dated date
This is when the bond begins accruing interest. The dated date and delivery date are often on the same day.
The delivery date
This is when the investor hands the borrower money and receives the bond in exchange. As mentioned, this will typically be the same as the dated date. If not, the borrower must pay the investor any accrued interest by the delivery date.
The first interest payment date
This is when the first interest payment is due. This usually occurs on or within six months of the dated date. The period between the dated date and FIPD is known as a “short” interest repayment period if it’s less than six months.
Periodic interest payment dates
The borrower pays interest to the investor on these dates, starting after the FIPD and ending on the maturity date. Most municipal bonds pay interest semi-annually — twice per year — meaning there would be two periodic interest payment dates each year.
The maturity date
This is when the principal amount of a bond or other debt security becomes due. The borrower pays back the face amount of the bonds plus the last remaining interest payment. The bond certification will have this date printed on it.
An investor buys a bond with the following dates:Dated Date: July 1, 2023Delivery Date: July 1, 2023First Interest Payment Date: January 1, 2024. Maturity Date: July 1, 2033
The bond begins accruing interest on July 1, 2023, with a full semi-annual interest payment due to the investor on January 1, 2024 (a 180-day period). Payments would then be due each July and January until July 1, 2033, when the bond matures. At that point, the borrower repays the face value with the final interest payment.
What’s important here?
Investing in bonds requires you to keep track of several dates, and some bonds pay on different schedules than semi-annually. Knowing these dates helps you understand when you pay the borrower, when you earn interest, and when the borrower repays you for the loan.