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Home > Education and Museum > CCBS Handbook - Basic Bond Analysis

CCBS Handbook - Basic Bond Analysis

Handbook No 20
By Joanna Place

Understanding basic mathematics is essential to any bond market analysis. This handbook covers the basic features of a bond and allows the reader to understand the concepts involved in pricing a bond and assessing its relative value.

The handbook sets out how to price a bond, with single and multiple cash flows, between coupon periods, and with different coupon periods. It also explains the different yield measures and the uses (and limitations) of each of these. Further discussion on yield curves helps the reader to understand their different applications. Worked examples are provided. These are typically from the UK market and aim to assist the reader in understanding the concepts: other bond markets may have slightly different conventions. The section on different types of bonds discusses the main features of each and the advantages and disadvantages to both the issuer and investor. The final section explains how to assess relative value, risk and return: the key factors in a trading strategy.

In practice, most traders will have computers to work out all these measures, but it is nevertheless essential to have some understanding of the basic mathematics behind these concepts. More sophisticated techniques are not covered in this handbook, but a reading list is provided to allow the reader to go into more depth.

A glossary of terms used in the handbook is provided at the end of the handbook.

This handbook is also available in Arabic and Spanish.

Key Resources

Basic Bond Analysis
Complete handbook
Download PDF (247k)
Basic Bond Analysis
Spanish version
Download PDF (440k)
Basic Bond Analysis
Arabic version
Download PDF (1,368k)