For which type of bonds is the 30-day month, 360-day year method used in calculating accrued interest?

The 30-day month, 360-day year method is specifically used for calculating accrued interest on municipal bonds. This method simplifies the interest calculation by assuming that each month has 30 days and the year has 360 days. As a result, it standardizes how interest is accrued and can make it easier for investors and brokers to calculate interest that has accumulated since the last coupon payment.

Municipal bonds often employ this method to keep calculations uniform and consistent, which is particularly useful because they are frequently traded on a secondary market, where pricing and interest calculations need to be clear and straightforward for both buyers and sellers. The adoption of this method does not apply to Treasury bonds, corporate bonds, or convertible bonds, which may use different systems for calculating accrued interest. This distinction is important for professionals in the securities industry to ensure accurate interest calculations and transactions involving different types of securities.