How are bonds priced on the bond market?

A bond is priced so that it's yield matches the market rate. The market rate may and usually does change throughout the course of a business day. This factor has been well documented under 'How to Make Money out of Bonds'.

But there is also an adjustment in bond value related to interest payments.

Suppose interest was paid on one particular day per year. You might think it would be best to buy the bond on the day before the interest is paid, collect the interest and sell the bond the next day. This means collecting a whole year's interest through just holding the bond for one day!

The reason this doesn't work is that although all the interest is paid on one day, it is actually earned throughout the entire year. So suppose you bought into a thirty-year bond which paid interest annually and sold after 364 days, just one day before the interest was due to be paid. Would you get any interest? No, because you had sold out to someone else on the day before the interest payment was due, and the person who set up the bond only knows they must pay interest to the bond holder- and that is no longer you. But the market does have a way of compensating for this. The price of the bond on the day you sell will be based on the market rate PLUS an extra amount which, in your case, would be 364/365 times the full years interest due, if you had held the bond for the full year.

Thus to buy an existing bond for the lowest possible cash outlay (leaving aside coupon interest rate adjustments as discussed earlier), you should buy it the day after the interest payment has been made.