A Practical Guide to Bonds and Swaps

This paper provides a practical introduction to the fixed income capital markets (bonds and swaps). It is intended to provide the practical, institutional aspects of the markets together with the fundamental concepts used in today’s capital markets. In line with their ubiquity throughout the markets, derivatives (swaps) are introduced early. There are two central themes running throughout the paper which are central to the modern fixed income capital markets: Mark-to-market valuation by calculating the present value (PV) of cash flows off a yield curve; Measuring risk as the change in the present value resulting from changes in the yield curve.