Labs/Paths/Fixed Income Essentials
Curated learning path
Intermediate
1.3 hr · 3 labs

Fixed Income Essentials

Bond Math, Duration, and Yield-Curve Risk

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.
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The journey

3 stops · 1.3 hr of focused work · Intermediate

1
Stop 1 · 35 min · Valuation
Bond Pricing & YTM
DCF bond pricing, yield to maturity, duration, convexity. With live curves.
DCF bond pricing, YTM, modified duration, convexity — all in one.
Open lab →
Worked example
10-year, 4% coupon, $1000 face, semi-annual — bond price vs YTM.
YTMPriceΔ from par
3.0%$1,085.30+8.53%
4.0%$1,000.000.00%
5.0%$ 922.05−7.80%
6.0%$ 850.61−14.94%
Mod. Duration ≈ 8.1 Convexity ≈ 75
2
Stop 2 · 20 min · Risk & Return
Risk & Return Statistics
Compute E(r), σ², σ, Sharpe, skew, kurtosis from probabilistic or historical data.
Apply the same risk/return framework to a bond return series.
Open lab →
Worked example
Annual returns: AGG (US Aggregate Bond) vs SPY (last 10y).
SeriesMeanσSharpeMax DD
AGG (bonds)2.4%5.8%0.07−16.3%
SPY (stocks)12.5%16.2%0.53−33.7%
Bonds: lower return, much lower σ — classic Sharpe trade-off.
3
Stop 3 · 25 min · Portfolio Construction
Asset Allocation Wizard
Risk profile questionnaire then recommended allocation plus 10y backtest.
Slot bonds into a strategic allocation matched to your risk profile.
Open lab →
Worked example
Conservative profile: 70% bonds. Backtested 10y on AGG + GLD + SPY.
ProfileBondsStocksAlts10y CAGRMax DD
Conservative70%20%10%+5.1%−9.2%
Moderate35%50%15%+8.4%−18.5%
Aggressive15%70%15%+11.2%−27.8%

Apply what you learned

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.

Case Study

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.

Free for any classroom or self-study use. Each Lab works standalone too — this path is one suggested ordering of the foundations.