Bond pricing, yield to maturity, modified duration, convexity — and how to use them to size interest-rate risk. The practitioner pieces that come up daily on a rates desk.
Treasurers, fixed-income analysts, FRM Part I candidates.
By the end you will…
Price any bond by discounting cash flows and back out yield to maturity.
Compute modified duration and convexity to size interest-rate risk.
Compare credit risk via spread-to-Treasury frameworks.
Slot fixed income into a strategic asset allocation that matches a risk profile.
Real-world scenarios that pull together the path. Each links back to the Labs you just used.
Case Study
Should I buy a 10-year Treasury at 4% or a corporate at 6%?
The 'extra 2% yield' isn't free — it's the price of credit risk. A BBB-rated 10y corporate at 6% trades at a 200 bp spread to the 4% Treasury. Historical default rates on BBB over 10 years are ~3.5% cumulative; assume 40% recovery, so expected loss ≈ 2.1%. The 'real' risk-adjusted yield on the corporate is closer to 4%, basically matching the Treasury. Plus the corporate carries 8.1 years of modified duration vs Treasury's 8.5y — a 100bp rate move costs you 8% either way. Run the numbers in Bond Pricing → toggle YTM and compare prices side by side. Lesson: spread compensates for default risk, not for free yield.
Indonesian SBN vs US T-Bond for an Indonesian retiree
10y Indonesian SBN (FR-series government bond) yields ~6.7%. 10y US Treasury yields ~4.0%. Local advantage: SBN pays in IDR with no FX risk to a domestic spender. But IDR has depreciated ~3% annualized against USD over 20 years, and Indonesian inflation runs ~3-4% vs US 2-2.5%. Real yield on SBN: ~3.0%. Real yield on UST (USD): ~1.7% — but for an Indonesian who needs to spend in IDR, USD-denominated bonds add 50-200 bps of FX volatility (σ ~10% on USD/IDR). The Bond Pricing Lab handles both curves; the Asset Allocation Wizard's Indonesia mode lets you mix them with a duration target.