This lesson covers fixed-income markets, focusing on government and corporate bonds, their features, valuation, and risk analysis .

3.1 Bonds and Bond Market Features
Bonds are long-term debt securities where governments and corporations borrow funds from investors . Key types include: Government bonds (sovereign debt), Corporate bonds (investment-grade and high-yield), Treasury bonds (nominal and inflation-indexed), and Municipal bonds (state and local government) . Key features include coupon rate and payment frequency, maturity date, face value, call and put provisions, and covenants .

3.2 Valuation Models
Bond valuation is based on the present value of expected cash flows, discounted at an appropriate rate reflecting the risk of the bond . The no-arbitrage framework is central to bond valuation . Key metrics include yield to maturity (YTM), bond price-yield relationship (inverse relationship), duration, and credit spreads .

3.3 Risk Analysis
Key risks in fixed income markets include: Interest rate risk (sensitivity of bond prices to rate changes, measured by duration) , Credit/default risk, Liquidity risk, and Reinvestment risk . Students learn to perform basic risk analysis using duration models .