Chapter 7: Fixed-Income Securities: Pricing and Trading

In this section

• 7.1 Calculating Price and Yield of a Bond
  • 7.1.1 Bond Pricing Fundamentals
    An in-depth exploration of the foundational concepts necessary for understanding how bonds are priced, focusing on present value calculations and the significance of coupon and principal payments.
  • 7.1.2 Yield to Maturity (YTM)
    An in-depth exploration of Yield to Maturity (YTM), its significance, and the method for calculating it, emphasizing its critical role in evaluating fixed-income securities.
  • 7.1.3 Yield to Call (YTC) and Yield to Put (YTP)
    An in-depth analysis of the Yield to Call (YTC) and Yield to Put (YTP) for callable and putable bonds, including scenario analysis for varying market conditions.
• 7.2 Term Structure of Interest Rates
  • 7.2.1 Yield Curve Basics
    Understanding the yield curve and its various shapes, including normal, inverted, and flat, and their economic implications.
  • 7.2.2 Theories Explaining the Term Structure
    Understanding the theories behind the term structure of interest rates, including Expectations Theory, Liquidity Preference Theory, and Market Segmentation Theory.
• 7.3 Fundamental Bond Pricing Properties
  • 7.3.1 Price-Yield Relationship
    Understand the critical aspects of the price-yield relationship in bond markets, including the inverse relationship and the impact of duration.
  • 7.3.2 Convexity
    A detailed exploration of convexity, an essential concept in bond pricing and portfolio management, illustrating its role in understanding the non-linear relationship between bond prices and yields, and its applications in managing interest rate risk.
  • 7.3.3 Accrued Interest and Clean vs. Dirty Price
    Understanding the nuances of bond pricing including the calculation of accrued interest and the distinction between clean and dirty prices.
• 7.4 Bond Market Trading
  • 7.4.1 Trading Platforms and Venues
    An in-depth look at the venues where bonds are traded, including exchange-traded bonds and the over-the-counter market.
  • 7.4.2 Trading Strategies
    A comprehensive exploration of trading strategies for bonds, focusing on Buy and Hold vs. Active Trading approaches and various related concepts.
  • 7.4.3 Settlement Procedures
    An in-depth look at the processes and regulations involved in bond market trade settlement.
• 7.5 Bond Indexes
  • 7.5.1 Role of Bond Indexes
    A comprehensive exploration of the role of bond indexes in benchmarking performance and introducing major bond index providers.
  • 7.5.2 Construction of Bond Indexes
    An in-depth examination of how bond indexes are constructed, focusing on selection criteria and weighting methodologies.
  • 7.5.3 Application in Investment Management
    Exploring the application of bond indexes in investment management, focusing on strategies for passive vs. active management and the role of bond index funds and ETFs.