Bonds, Rates and Credit
20 lessons in this track so far, in the order we suggest reading them.
Bond Basics
IntermediateHow Bonds WorkA bond is a loan that pays interest and returns principal at maturity. Learn coupons, price and yield, why prices fall when rates rise and the main bond risks.IntermediateTreasury Bills, Notes and BondsUS Treasuries are bills, notes and bonds issued by the federal government. Learn their maturities, how auctions work, TIPS, how they trade and why they matter.IntermediateCorporate BondsCorporate bonds are loans to companies that pay interest above government bonds. Learn investment grade vs high yield, spreads, covenants, callable bonds and risks.IntermediateMunicipal BondsMunicipal bonds are issued by US states, cities and agencies, often with tax free interest. Learn GO vs revenue bonds, tax equivalent yield and the risks.IntermediateInvestment Grade vs High-Yield BondsHigh yield bonds are rated below investment grade and pay higher interest for higher default risk. Learn how they behave, default cycles, spreads and how to invest.IntermediateCredit RatingsCredit ratings from S&P, Moody's and Fitch grade the risk of default on bonds. Learn the scales, investment grade vs high yield, default rates by rating and limits.IntermediateYield to MaturityYield to maturity is the total return of a bond held to maturity. Learn how YTM is calculated, current yield, yield to call and worst, and YTM's assumptions.
Rates Math
AdvancedDurationDuration measures how sensitive a bond's price is to interest rate changes. Learn Macaulay, modified and effective duration, how to calculate them and their uses.AdvancedConvexityConvexity measures how a bond's duration changes as yields move, refining price estimates for big moves. Learn the formula, positive and negative convexity and uses.AdvancedDV01DV01 measures how many dollars a bond or portfolio gains or loses for a one basis point change in yield. Learn the formula, hedge ratios and how traders use it.AdvancedYield CurvesThe yield curve plots bond yields across maturities. Learn normal, flat and inverted curves, what drives them and why inversions have signalled recessions.
Rates Trading
AdvancedYield Curve Trades: Steepeners, Flatteners and ButterfliesYield curve trades bet on changes in the curve's shape rather than its level. Learn steepeners, flatteners and butterflies, DV01 weighting, carry and roll down.AdvancedInterest Rate SwapsAn interest rate swap exchanges fixed interest payments for floating ones on a notional amount. Learn how swaps work, SOFR, swap rates, valuation, uses and risks.AdvancedSwaps ExplainedA swap exchanges one stream of cash flows for another. Learn the main types, from interest rate and currency swaps to credit, total return and commodity swaps.
Credit
AdvancedCredit SpreadsA credit spread is the extra yield a risky bond pays over a safe benchmark. Learn how spreads are measured, what drives them and what they signal about risk.AdvancedCredit Default Swaps (CDS)A credit default swap is insurance like protection against a borrower defaulting. Learn how CDS work, spreads and upfront pricing, credit events, uses and risks.AdvancedDefault Probability and Recovery RateDefault probability is the chance a borrower fails to pay. Learn historical default rates, probabilities implied by spreads, the Merton model and recovery rates.AdvancedDistressed Debt and Bankruptcy TradingDistressed debt is the bonds and loans of companies near default, bought at deep discounts. Learn how investors value it, the bankruptcy process and strategies.AdvancedCLOsA CLO pools leveraged loans and splits the cash flows into tranches from AAA to equity. Learn how CLOs work, the waterfall, coverage tests and the risks.AdvancedCredit IndicesCredit indices track baskets of credit default swaps or bonds. Learn how CDX and iTraxx work, rolls, index tranches, bond indices and how traders use them.