What typically characterizes a bond trading flat?

A bond is described as trading flat when it does not pay periodic interest, which means it is typically a zero-coupon bond or a bond that has defaulted on its interest obligations. In this scenario, the bondholder does not receive regular coupon payments and the price reflects that absence of income.

When a bond trades flat, investors are primarily concerned with the bond's principal repayment at maturity rather than periodic interest receipts. This situation arises usually when the issuing entity is unable to meet its interest payment obligations or if the bond is structured in a way that does not pay interest during its life, such as with zero-coupon bonds which are issued at a discount and mature at par value.

In contrast, a bond trading with accrued interest would mean that the buyer pays not only the price but also any interest that has accumulated since the bond’s last coupon payment, which does not apply in the case of a flat trading bond. Additionally, bonds backed by government securities may still pay interest regularly, and an increase in market value does not specifically pertain to trading flat, as market value can fluctuate for various reasons regardless of interest payments.