Learn About Bonds: explaining fixed income to the rest of us

Learn how bearer securities and bonds work, including coupons, yields, and the carry and roll down concept for income returns. Contrast paper certificates with electronic trading, ISINs, and depositories.

Explore how bond coupons work, from issuer borrowing and notional principal to denominations, tenor, maturity, and fixed or floating coupon payments tied to rates like Libor or Sofr.

Learn how floating-rate notes set coupons as three-month Libor plus a spread, measured in basis points, with a three-year example to compare to deposits.

Decode bond details by comparing Bloomberg's DSS description screen with the Evolution platform, fill key fields like CUSIP and notional on an Excel exercise, and calculate the semiannual coupon.

Understand how fixed coupons differ from market-driven yields, and see how bond price at discount or premium alters yield on a $1,000 par bond with semiannual coupons.

Explore how bond prices, coupons, and principal shape the yield and return of par, discount, and premium bonds, using fixed income concepts and yield calculations.

Explore how bond returns arise from carry and roll-down, distinguish realized from expected returns, and see how par, premium, and discount affect yield and price.

Learn how carry and slide calculate the expected annual return for a three month Libor based bond, using basis points, refinancing at Libor, and shift in spreads.

Understand how traders earn from carry, slide, and bid-offer spreads when trading bonds, and how balance sheet constraints drive faster matching of buyers and sellers.

Explore how interest rate swaps convert Libor payments into fixed rates, compare fixed and floating rate bonds, and use spreads to swaps to assess bond returns.

Explore how supply and demand dynamics shape fixed income trading, including bond yields, prices, market clearing, and the impact of central bank actions on issuers and investors.

Explore how treasury bond auctions in the primary market use Dutch auctions to fix prices and yields from a fixed supply, allocating by highest bids and resulting in partial fills.

Explore the one issue market and bookbuilding, uncover how auctions set bond price and yield before issue, including the when-issued market, tail yields, and the roles of primary dealers.

Explore switch trades as asset managers swap bonds to capture yield gains amid fund flows and substitutions, driving price and yield dynamics across government and corporate bonds.

Learn how central banks pursue price stability and growth via monetary policy, inflation targets around 2%, and the impact on employment, GDP, and bank yield curves.

Learn how economic indicators guide central bank policy decisions and move bond markets. Identify CPI and PPI roles, unemployment data, housing trends, and real versus nominal GDP.

Examine how inflation emerges from money supply and central bank actions, and compare fiscal and monetary policy's impact on growth, prices, and wages.

Calculate inflation by comparing a fixed basket of goods across years, applying compounding to derive the rate, and explore CPI nuances, cross-country differences, and the role of inflation-linked bonds.

Examine how central banks use tools like short-term rates, balance sheets, and forward guidance to balance inflation and growth, with Canada's MPC and the U.S. Federal Reserve as examples.

Explain how repurchase agreements finance bond portfolios through overnight repos and reverse repos, using collateral, haircuts, and settlement steps to leverage cash and manage risk.

Understand how the overnight rate and repo rate link through bank funding, open market operations, and money market dynamics in fixed income markets.

Explore why inflation resists simple explanations, examining CPI, forward rate expectation, and the web of factors from supply chains to wage dynamics that make central banking hard.

Explore forward rate expectations within fixed income as Fed hawks and doves steer inflation and growth outlook, shaping bond yields and trader strategies.

Explore how yield curves illustrate short term and long term yields, including steepening, flattening, and inverted curves that reflect Fed policy expectations.

Explore why the yield curve slopes upward from the bond traders' view, highlighting carry and slide, forward rates, and repo financing, and explain steepeners and flatteners across market scenarios.

Explore why the yield curve slopes upward from bond traders' view, driven by forward rate expectations, carry, and financing costs, and how steepeners and flatteners signal rate moves.

Explore the core concepts of fixed income and bond math, examining debt issued by governments, corporations, and households, and the scale and dynamics of the global and Canadian debt markets.

Explore bond math in practical terms using Excel, covering bullet/vanilla bonds, zero coupon and annuity bonds, with present value, face value, coupon, yield, and discounting of cash flows.

Learn to calculate bond yields in Excel with RATE(), using five-year offers, with a zero coupon and a 6% coupon, translating present value, future value, and par value into yield.

Explains the reinvestment assumption in yield to maturity by showing how reinvesting each year's coupon at 6% builds the bond's lifetime value, totaling 13,382.

Yield to maturity is the bond’s internal rate of return and standard for comparing bonds by cash flows. Nominal yield equals coupon over par; current yield equals coupon over price.

Explore the power of an annuity by comparing equal annual payments over five years to a bullet bond, showing how interest and principal create level cash flows.

Examine how bond prices adjust to yield targets using Excel to compute present value and rate. Compare bullet, zero, and annuity bonds with 6% and 10% yield examples.

Explore how bond prices move with yield changes, shifting between par, premium, and discount, and compare present value, future value, and yield to maturity.

Explain how bond issuance costs are carved out by underwriters and legal and accounting fees, yielding the borrower's all-in cost of about 10.4–10.5%, not the investor's yield.

Analyze how bond prices move inversely with yields using Excel to compute present value and yield to maturity for 4%, 8%, and 12% scenarios, highlighting premium, discount, duration, and convexity.

Examine how primary bond issues set terms and how the secondary market prices these bond rights using present value under a constant yield.

Explore how bid-ask spreads, with dealers buying at the bid and selling at the ask, use mid prices, semiannual coupons, and period yields to explain yield to maturity concepts.

Learn how bond equivalent yield converts period yields to an annual rate and compares different coupon frequencies. Explore how price and convexity relate BEY to true yield through reinvestment.

Explore how to compute the true yield by compounding to derive the effective annual yield, compare it with bond equivalent yield, and apply Excel formulas for semiannual coupons.

Convert bond equivalent yield to effective annual yield with a formula, noting eay is interchangeable with terms like rate, and that compounding makes eay exceed bey, except for coupon bonds.

Learn how zero-coupon bond pricing uses semiannual bond-equivalent yield versus effective annual yield, highlighting US/Canada conventions and euro market differences.

Explore money market instruments like T-bills, repo, commercial paper, and CDs, and learn how 360 vs 365 day conventions shape money market yield calculations.

Compare three zero coupon bonds across money market conventions, compute 365-day returns in Excel, and explore bond equivalent yield and money market yields with 360/365 day counts.

Analyze how compounding affects money market instruments and CDs, comparing coupon frequency, reinvestment at the same money market yield, and holding period yield conventions for 365-day horizons.

Compare money market discount basis with money market yield under 360-day US conventions, translating present value and face value into discount and yield calculations for t-bills and CDs.

Compare money market instruments with traditional coupon bonds using the 365/360 convention and yield to maturity. Determine indifference prices under annual and semiannual coupon structures.

Learn about money market instruments, including certificates of deposit, repurchase agreements, t-bills, and commercial paper. Explore how collateral, par, and interest at maturity shape short-term financing.

Learn how settlement dates affect bond pricing between coupons and how fractional periods move present value toward coupon dates (T+1, T+2, T+5 euro bonds).

Explore how semiannual coupons, yield to maturity, period yields, and fractional periods drive bond pricing, showing why near-term coupon payments push prices toward a premium.

Learn day count conventions, including actual over actual and 30 over 360, for calculating bond fractions. Understand dirty price, accrual interest, and why clean price matters for yields.

Compute the dirty price as the present value of all future cash flows, incorporating accrued interest between coupons, using a US Treasury example with 5% coupon and 6% yield.

Calculate the dirty price in Excel by aligning last and first coupon dates. Apply the semiannual coupon rate to par value using fractional period and settlement days.

Learn how clean price removes accrued interest from bond quotes, revealing the true price and allowing accurate comparison with the dirty price.

Master bond pricing in Excel using price and yield functions. Navigate clean and dirty prices and accrued interest to handle fractional periods.

Calculate bond prices and yields in Excel by computing clean price, accrued interest, and dirty price for multiple bonds, using bond equivalent yield and 30/360 convention.

Examine realized compound yield and holding period yield, showing how reinvestment rates affect returns when coupons are reinvested versus the forward-looking yield to maturity.

Explore realized compound yield and holding period yield by reinvesting cash flows at 8%, using a price of 8484 and a 10,000 maturity, yielding about 9.7% annualized.

Compare yield to maturity with realized compound yield, also known as the modified internal rate of return, and calculate holding period yield in Excel using an 8% reinvestment rate.

Learn to compute realized compound yield and holding period yield in Excel by integrating bond math concepts such as coupon rate, day count conventions, and settlement timelines.

Explore how rising interest rates create interest rate risk for bonds, lowering prices and altering yields in primary and secondary markets, while noting credit risk, liquidity risk, and market risk.

Explore how the dollar value of one basis point, DV01, measures a bond's price sensitivity to yield changes, and how to hedge using DV01 with a benchmark bond.

Practice hedging interest rate risk with a 1-to-1 hedge, aligning price responses to yield changes. Translate basis point shifts into percentage price moves using par 100 and the investment value.

Explore modified duration and dollar duration as core tools for bond price sensitivity, contrast with Macaulay duration, and apply Excel-based calculations to compare three bonds amid basis point changes.

Compare linear duration estimates to convexity-aware price changes using modified duration and dollar duration for bonds, with Excel-based calculations for 50 and 200 basis point yield shifts.

Explore how convexity reveals the non-linear price–yield relationship, highlighting larger estimation errors for long-term bonds at low yields and how convexity adjustment improves price change estimates.

Learn how convexity refines bond price estimates for large yield moves using DV01 and modified duration, compare convexity-adjusted results with duration-only estimates, and verify with Excel price calculations.

Apply duration and convexity to estimate bond price changes from yield moves using modified duration and convexity, and adjust for dirty versus clean prices.

Explore dirty price and accrued interest calculations for a semiannual bond, then compare yield-driven price changes using duration and convexity in Excel.

Demonstrates comparing a corporate bond to a vendor price using an IBM 5.1% coupon bond, highlighting G and Z spreads, OAS, duration, convexity, and hedging with Treasuries.

Explore how an Excel model matches the YAS screen by comparing clean price, yield, accrued interest, DV01, duration, and convexity for a corporate bond, using settlement date and price conventions.

Examine make-whole call provisions as embedded options that allow issuers to redeem early at the greater of par or PV of cash flows, discounted at ten-year yield plus 50 bps.

This lecture explains a make-whole call on an Apple 2043 bond, detailing how the make-whole provision determines redemption price and how higher make-whole spreads increase call risk for investors.

Explain callable bonds and traditional call provisions, including call prices and call protection, and show how they affect yield to maturity, duration, and investor versus issuer incentives.

Explore sinking fund redemption, where principal prepayments occur during the life of the bond, with mandatory or optional payments, affecting call protection, par versus market price, and reinvestment risk.

Explore yield to call, yield to maturity, and yield to worst for callable bonds, including reinvestment at the yield to call and the lowest possible yield.

Explore how the yield curve links macroeconomics to interest rates, with insights on duration and convexity, central banks, and the role of U.S. Treasuries in global finance.

Explore why the yield curve typically slopes upward, driven by liquidity preference and risk premium. See how expectations about future rates and biased expectations shape term structure.

Market segmentation theory explains how investor preferences for maturity shape the yield curve. Banks favor short-term cash flow needs, while life insurance companies and corporations seek long-term investments in bonds.

Explore how monetary policy shapes inflation, interest rates, and bond markets through central banks' rate decisions, open market operations, and expectations.

Explore how monetary policy shapes the yield curve across business cycle scenarios, highlighting rate changes, curve steepening and inversion, and bond market responses.

Explore spot rates and how stripping coupon bonds into zero-coupon components reveals the exact yields for each cash flow, enabling present-value pricing with a bond equivalent yield.

Learn how spot rates price bullet bonds and strip to zero coupons to expose arbitrage, pricing bonds beyond treasuries with the spot-rate formula using Y_t.

Use spot rate valuation to compare bonds with differing cash flows, because yield to maturity is imperfect and prices reflect premium or discount.

Bootstrapping constructs a spot curve by deriving spot rates from coupon bonds, using T-bills as anchors, isolating coupons to create zero-coupon cash flows and compute bond yields.

Master bootstrapping the spot curve by stripping coupon cash flows, calculating present values, and deriving spot rates and yield to maturity across maturities, with practical limitations.

Explore yield spreads and the z spread in bond valuation, compare g and t spreads, and demonstrate using spot rates to derive a precise price.

Calculate the Z spread for a three-year semiannual bond using spot rates, cash flows, and goal seek; discuss callable bonds and yield choices.

Explore how the option adjusted spread (OAS) isolates option cost from the Z spread, analyzes call risk and reinvestment risk in callable bonds, and applies binomial models to option pricing.

Learn how forward rates re-express spot rates, compare bond strategies using six-month and one-year periods, and understand forward rate notation and bootstrapping through practical examples.

Explore forward rate calculations using bootstrapped spot rates in Excel, annualizing to equivalent yield and computing cumulative return, with examples of six-, twelve-, and eighteen-month forward rates.

Learn how forward rates, as future spot rates, explain differences along the spot curve and how to implement a trading strategy using two-year and 18-month strips based on rate predictions.

Explore credit risk and credit spreads in bond markets, analyzing default, liquidity, tax, and call risks, how rating agencies shape yields, and why spreads widen in uncertainty.

Analyze credit quality through the four c's—character, capacity to pay, collateral, and covenants—and apply liquidity and profitability ratios to assess debt service and risk.

Explore the debt capital markets' primary market origination, fees, and underwriter roles as banks monetize bond issuance for corporations and governments, highlighting debt versus equity funding and cost of capital.

Broker dealers use debt origination to issue bonds via loan syndication, covenants, and liability management. Mature bonds follow a rolling system, ensuring debt origination reliability.

Learn how banks issue loans to corporations, keep loans on their balance sheets as assets while borrowers incur liabilities, and use relationship pricing for investment-grade, committed undrawn revolvers.

Explore debt origination and how debt forms a cheap, tax-deductible part of an investment-grade company's capital structure, with flexible bond issuance and underwriting decisions.

Visualize how a best efforts new issue flows from corporate clients through syndicate desks to buy-side investors, coordinating pricing, discount to par, and coupon parameters via indications of interest.

Explain the flow of funds in a $500 million bond issue: investors pay 99.447, yield 3.19%, coupon 3.125%, and the underwriter collects 65 bps, leaving issuer about 493 million.

Explore liability management techniques for rolling debt forward, including open market repurchases, tender offers, exchange offers, and consent solicitations, to optimize capital structure.

Examine a case study where a premium 10-year bond is swapped for a 30-year issue with cash to make investors whole, using Excel to apply the 10% NPV accounting rule.

Explore how corporate hedging mitigates foreign exchange, interest rate, and commodity risks using vanilla, bilateral over-the-counter derivatives, with emphasis on hedge accounting, collateral, and credit risk considerations.

Understand how banks profit from interest rate swaps by earning mid-market spreads in basis points, pricing fixed and floating legs with Libor, using present value and npv to track pnl.

Explore how futures work to hedge risk, enable price discovery, and use forwards vs futures, margin, and cash settlement.