When you’re buying a gilt, you have to compensate the seller for any interest that has accrued on the gilt since their last dividend payment.

Most of the time, accrued interest is a positive value.

However, if a gilt settles during the ex-dividend period, an accrued interest adjustment happens to avoid double counting. This results in a negative value on the contract note.

The ex-dividend period is the seven business days leading up to the dividend payment date.

The adjustment happens because the seller receives the full dividend payment, but part of that payment was technically earned by the buyer during their holding period.

This accrued interest adjustment is mandated by HMRC to avoid double counting interest.