What you’ll learn

12 short chapters. How bonds work: coupons and yields, why prices fall when rates rise, duration, credit spreads and the yield curve, ending in a bank run. Then the Fed, zeros and forwards, real yields, mortgage bonds and swaps, and how a bank hedges. Two acts. One chapter in every act is free.

Act I

Rates Move

01How bonds workFREEWhat a bond is: face value, coupon and maturity, Treasury bills, notes and bonds, and why the issuer pays whoever holds the bond on the day.02Bond prices and yieldsWhy bond prices fall when interest rates rise, yield to maturity versus current yield, and what makes a bond trade at a premium or a discount to face value.03Bond duration and interest rate riskDuration as one number for a bond’s interest rate risk: why a 30-year bond falls much further than a 2-year when rates rise, and where convexity bends the rule of thumb.04Credit ratings and bond spreadsDefault risk and credit ratings from AAA to D, investment grade versus high yield, basis points, the spread over Treasuries, and expected loss.05The yield curve and inversionHow to read the yield curve: normal, flat and inverted, the 10-year minus 2-year spread, two real Treasury curves from 2021 and 2023, and why inversions worry people.★Interest rate risk: a bank run caseCase: a bank full of safe Treasuries meets rising rates. Mark held-to-maturity and available-for-sale bonds to market, find the real equity, and see why a run ends it.

Act II

Hedge the Book

06The Fed and interest ratesFREEHow the Fed sets the federal funds rate, why short yields follow it and long yields don’t, how markets price hikes before they happen, and what quantitative easing and tightening do.07Zero-coupon bonds and forward ratesZero-coupon bonds and Treasury STRIPS, why a zero’s duration is its maturity, spot rates, and how forward rates turn the yield curve into a forecast of rate cuts or hikes.08Inflation, TIPS and real yieldsNominal versus real yields, how TIPS protect against inflation, breakeven inflation, and why the 2022 bond crash was mostly a jump in real yields, read from real Treasury data.09Callable bonds and mortgage-backed securitiesCallable bonds and yield to worst, how mortgage-backed securities work, and why prepayments give them negative convexity and extension risk when rates rise.10Interest rate swapsHow an interest rate swap trades fixed for floating on a notional, what SOFR is, why paying fixed has negative duration, and how banks use swaps to hedge bond portfolios.★Bank interest rate risk: EVE and hedgingCase: measure a bank’s economic value of equity and duration gap, size a swap hedge, see extension risk stretch the bond book, and decide whether to drop the hedge on a forecast.

Glossary of every term in the course →

More courses

Read a business on balancesheet.art → Balance sheets, earnings reports and how to tell a good investment from a bad one.

Read the chain on regardedtrading.art → Calls, puts, the Greeks, expiration day and the short side. For people who already trade them.

Read the deal on cookedbooks.art → Price a company, fund the buyout, then open the data room and find out what the seller’s numbers were hiding.