Chapter 7: Fixed Income

In this section

• Fixed-Income Instrument Features
  Explore the foundational elements of fixed-income securities, including bond indentures, covenants, legal structures, and the roles of various stakeholders who protect investor interests.
• Fixed-Income Cash Flows and Types
  Explore how different bond structures—bullet, amortizing, sinking fund, floating-rate, step-up, and more—shape the nature and timing of cash flows and the allocation of risks between issuers and investors.
• Fixed-Income Issuance and Trading
  Explore how bonds are brought to market and traded, including the roles of underwriters, syndicates, and secondary market structures, along with practical examples and best practices.
• Fixed-Income Markets for Corporate Issuers
  Learn how corporate issuers tap the fixed-income markets through various debt instruments, from short-term commercial paper to long-term bonds, and explore risk, credit ratings, and covenant considerations.
• Fixed-Income Markets for Government Issuers
  Explore how sovereign and non-sovereign governments, as well as quasi-government entities, issue debt, the unique credit considerations involved, the auction processes, and common instruments such as T-bills, gilts, bunds, and JGBs.
• Fixed-Income Bond Valuation: Prices and Yields
  Learn how to value bonds by discounting future cash flows, calculate accrued interest, and understand the bond price–yield relationship.
• Yield and Yield Spread Measures for Fixed-Rate Bonds
  Explore different yield calculations, spreads, and practical insights for analyzing fixed-rate bonds. Understand yield-to-maturity, yield-to-call, nominal spread, z-spread, option-adjusted spread, and more.
• Yield and Yield Spread Measures for Floating-Rate Instruments
  Discover the mechanics behind floating-rate notes, including how their coupons reset and how to calculate discount margin, with practical examples and best practices.
• The Term Structure of Interest Rates: Spot, Par, and Forward Curves
  Dive deep into spot, par, and forward rates, learn how to build these curves using no-arbitrage arguments, and understand the key theories behind yield curve shapes.
• Interest Rate Risk and Return
  Explore how bond returns break down into coupon income, price shifts from yield movement, and reinvestment income, with a special focus on the interaction between investment horizons and Macaulay duration.
• Yield-Based Bond Duration Measures and Properties
  Dive into Modified Duration, Money Duration, and Price Value of a Basis Point (PVBP). Discover how coupon rate, yield, and time to maturity influence a bond’s interest rate sensitivity, and explore practical tips and examples for applying duration measures in fixed-income management.
• Yield-Based Bond Convexity and Portfolio Properties
  Explore how bond convexity refines duration-based price estimates, the difference between positive and negative convexity, and how to incorporate these measures into portfolio-level duration and convexity management.
• Curve-Based and Empirical Fixed-Income Risk Measures
  Explore how curve-based risk measures like key rate duration and empirical (regression) duration refine portfolio management by isolating interest rate risks at specific maturity points, with a focus on bonds that feature embedded options.
• Credit Risk
  Explore key elements of credit risk, encompassing probability of default, loss given default, and the role of credit spreads in fixed income investing.
• Credit Analysis for Government Issuers
  A comprehensive guide to evaluating sovereign and non-sovereign government debt, focusing on macro indicators, policy frameworks, political stability, and repayment structures.
• Credit Analysis for Corporate Issuers
  Explore how to evaluate the creditworthiness of corporate issuers by examining both qualitative and quantitative factors, assessing industry and macroeconomic impacts, and understanding key financial ratios and capital structures.
• Fixed-Income Securitization
  Explore how securitization transforms illiquid assets into tradable securities, the roles of various stakeholders, and the unique risks and benefits of these fixed-income instruments.
• Asset-Backed Security (ABS) Instrument and Market Features
  A comprehensive guide to non-mortgage asset-backed securities, covering credit enhancements, repayment structures, asset-specific risks, and prepayment considerations.
• Mortgage-Backed Security (MBS) Instrument and Market Features
  Explore Residential and Commercial Mortgage-Backed Securities, prepayment risk, pass-through structures, and key valuation drivers in this comprehensive guide.