Why?

Why bother spending days, between practice and work, making a document about bonds? Because it’s how you lay the foundation for financial literacy and the work on a Fixed Income trading desk. No matter what actual path you take in finance, being it trading, analysis, quantitative research, the mastery over bonds isn’t really something you can overlook.

Bonds: The Forgotten Giant.

The bond market makes the equity market look like a younger brother looking up to a behemoth. With over $130 trillion in global debt, somehow people still skip straight to stocks or options. Bonds, however, are where one can first learn what valuation, market structure, and risk actually mean, basically the stuff that really counts in the financial realm.

The Essentials: How Bonds Work.

When you buy a bond, you’re lending money to a corporation or a government. In return, because you want that sweet return, you get steady cash flows (coupons) and your principal back at maturity.

It’s a simple concept at the base, but the variations in credit ratings, coupon schedules, conventions, day counts between coupon payments… make mastery in this topic nontrivial. Unlike stocks, bonds mostly trade Over-the-Counter, not on exchanges, and understanding the liquidity and dealer system is core.

Time Value, Pricing & Yield.

At its heart, bond pricing is just present value math with fancy names, essentially futures cash flows discounted back. The most effective and informative numbers though are found through some declinations, such as the yield to maturity (YTM), current yield, yield to worst (YTW), and yield to call (YTC).

Risk Metrics: Duration & Convexity.

Everyone talks about “Macaulay” or “Modified” Durations, but few (apart from professionals) know what they are and how to use them right.

Duration measures price sensitivity to interest rates, the higher the duration the greater the risk from rate changes. Convexity goes further, capturing how duration itself shifts with yield (and why price changes aren’t just linear). If you want to hedge, speculate, or just not lose money, you need both.

Spreads, Repos, and Practical Trading

Then there are spreads, credit, z, OAS, comparing a bond’s yield against the “risk-free” Treasury or swaps. Why do these matter? Because they’re where value, risk, and arbitrage opportunities actually emerge on the trading floor.
And in the real world, no one holds bonds outright forever: enter repo markets.

Repo markets let you borrow against bonds, manage liquidity, or quickly change exposure. Know your clean price vs dirty price, settlement, PV01, and DV01.

From Theory to Application

In wrapping up this doc, the point was never just to summarize textbook theory. It’s about equipping myself with the knowledge of these beautiful instruments and the understanding of their dynamics.

Here you can download the file.