Bonds & Rates

A bond is just a loan with a resale market bolted on: you lend to a government or a company, get a piece of paper promising fixed payments, and — here’s the twist — you can sell that paper to someone else tomorrow. The instant a loan becomes tradable its price has to move, because the world’s rates keep changing while your bond’s payments stay frozen.

Climbing one rung at a time, this topic covers:

• What a bond actually is — coupon, face value, maturity, and the cast of characters on that piece of paper.
• Bond prices and yields — the see-saw where one goes up only when the other goes down, the single most important relationship in fixed income.
• The yield curve — what it means when long-term rates sit above (or, ominously, below) short-term ones.
• Duration — the bond’s effective time-to-payback and its gauge of how much it lurches when rates move.
• Convexity — the correction that explains why duration alone always lies a little.

It ends with a final exam that makes you trade the see-saw for real. Get these six and a bond prospectus stops looking like hieroglyphics.