What it means
Money markets and currency markets are built around a ladder of standard maturities, known as tenors, and almost all quoted prices sit on one of its rungs. Dealers hold positions, hedge and trade with each other on those dates, which is why liquidity and the tightest spreads cluster there.
Real commercial cash flows ignore that ladder completely. A customer pays on the 17th, a bond coupon lands on the 23rd, an acquisition completes on a Thursday in the middle of a month, and none of those dates is one month or three months from today.
When a client asks for a price to a broken date, the dealer prices the two surrounding standard dates and interpolates between them, most often with a straight-line calculation based on the number of days. The further the broken date sits from a standard rung, and the steeper the curve between the two rungs, the more the interpolation matters to the final number.
Conventions decide the detail. The day count basis, usually actual over 360 or actual over 365 depending on the currency, sets how interest accrues, and the business day rule decides what happens when the date lands on a weekend or a public holiday in either currency's home market.
Broken dates are not just an inconvenience; they carry a price. Dealers often widen the bid-offer spread slightly because they cannot hedge the position exactly, so a treasurer who can shift a settlement by a day or two onto a standard date sometimes gets a visibly better rate.
The same idea runs through forward currency contracts, deposits, loans, interest rate swaps and repurchase agreements. In every case the question is identical: what does the curve say at a point between two quoted points, and who bears the cost of the guesswork.
In practice
Real-world examples.
Example
An importer owes a supplier on the 19th of next month, which is 41 days away. The bank quotes a forward currency rate interpolated between the one-month and two-month points, and the treasurer compares it against simply buying at the one-month date and holding the currency for the extra eleven days.
Example
A company closing an acquisition on a specific Tuesday needs bridging funds for 52 days. The lender prices the facility by interpolating between its two-month and three-month cost of funds and adds a small premium for the non-standard term.
Example
A fund manager rolling a currency hedge wants the new contract to mature on the fund's quarter-end date rather than three months from the trade date. The dealer quotes the broken date, and the manager accepts a marginally wider spread in exchange for a hedge that matches the reporting date exactly.
Formula
Calculation
Broken date rate = Short rate + ((Broken days - Short days) / (Long days - Short days)) x (Long rate - Short rate)
A treasurer needs to place a 45-day deposit. The 30-day rate is quoted at 4.00% and the 60-day rate at 4.60%, so the interpolation is 4.00% + ((45 - 30) / (60 - 30)) x (4.60% - 4.00%) = 4.00% + (15 / 30) x 0.60% = 4.00% + 0.30% = 4.30%. On a deposit of $5,000,000 placed for 45 days on an actual over 360 basis, the interest is $5,000,000 x 0.043 x 45 / 360 = $26,875. Had the treasurer shortened the deposit to the standard 30-day date, the interest would have been $5,000,000 x 0.04 x 30 / 360 = $16,667, so the broken date earned $26,875 - $16,667 = $10,208 more for the extra 15 days.Case study
Seen in the real world.
Linmore Textiles is an illustrative, entirely fictional clothing wholesaler that pays its overseas mills on fixed invoice dates scattered through each month. For years its treasurer bought currency only at standard one-month and three-month dates and then held the balance in a foreign currency account until each invoice fell due.
In the illustrative review, the finance team added up what that habit cost: roughly eleven days of idle foreign currency on an average of $1,800,000 a month, earning nothing, while the local currency overdraft it could have repaid was charging around 7% a year. The figure came to approximately $38,000 of avoidable annual cost.
Switching to broken date forwards that matched each invoice removed most of it. The dealer's spread on the odd dates was slightly wider, costing perhaps $6,000 a year in total, which left a clear net gain and a far simpler cash position to reconcile. The fictional point is that matching dates usually beats carrying balances.
Watch out
Common mistakes.
- Assuming a broken date price is simply the nearest standard rate, when it is an interpolated number that can differ noticeably when the curve is steep.
- Ignoring holiday calendars, since a date that is a working day in one country may not be in the other, which shifts settlement and changes the interest accrual.
- Treating the wider spread on odd dates as unavoidable, when moving a payment by a day or two onto a standard date can genuinely improve the rate.
Questions
People also ask.
Why do dealers quote standard dates at all?
Because concentrating trading on a few dates creates deep liquidity, which in turn gives tighter spreads for everybody using them.
Is straight-line interpolation always used?
It is the market norm for short periods, although for longer dates or unusual curve shapes a dealer may use a curve-fitting method that produces a slightly different rate.
Does a broken date cost more or less than a standard one?
The underlying rate simply reflects the term, but the dealing spread is typically a little wider because the dealer cannot hedge the odd date precisely.
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