Fixed-Income Securities: Pricing and Trading

Chapter 7 turns fixed-income products into valuation problems. It explains bond price and yield measures, the term structure of rates, duration and volatility, trading mechanics, and the benchmark role of bond indexes.

Students should expect application rather than memorization here. The exam often tests how price reacts when yields move, how maturity and coupon change sensitivity, and why a yield curve shape matters for expectations or strategy.

Exam Focus

• Apply the inverse relationship between bond prices and yields in both discount and premium situations.
• Compare duration, maturity, coupon level, and convexity as measures of interest-rate sensitivity.
• Distinguish market-trading concepts such as spread, liquidity, settlement, and benchmark indexing from the pure pricing formulas.

In this section

• Bond Price, Yield, and Discounting
  How bond prices are calculated, how yield measures differ, how Treasury bill yields are quoted, and why reinvestment risk matters.
• Yield Curves and the Term Structure
  How nominal and real rates, yield-curve shape, and the main term-structure theories explain bond pricing across maturities.
• Duration and Bond Price Volatility
  The core bond-pricing properties, including inverse price-yield moves, maturity and coupon effects, yield-level effects, duration, and convexity.
• Bond Trading, Liquidity, and Settlement
  How Canadian bonds trade over the counter, how dealer liquidity affects execution, and why settlement, accrued interest, and T+1 matter.
• Bond Indexes and Benchmark Matching
  How bond indexes are built, why benchmark choice matters, and how index composition affects passive investing and performance measurement.