Capital Markets
Market structure and pricing
Capital markets provide long-term and short-term funding and investment outlets. Distinguish primary issuance from secondary trading; equity from debt; money market instruments of one year or less from capital market instruments; and exchange-traded from over-the-counter derivatives. Understand yield curves, credit spreads, duration, convexity, basis points, coupon versus yield, and day-count conventions. Know issuance mechanics such as book building, syndication, pricing, and covenants, plus the roles of underwriters, dealers, investors, and rating agencies. For treasury, the key is how market rates and spreads affect funding cost, investment value, and hedging.
Traps
One basis point equals 0.01%, so 50 bp equals 0.50%. Bond prices move inversely to yields. Duration approximates price sensitivity: a bond with 5-year duration loses about 5% for a 1% yield rise, before convexity. Coupon is not yield; a premium or discount bond's yield differs from its coupon. Annual versus semiannual compounding changes effective cost. Gross spread is not net proceeds. SOFR has largely replaced LIBOR, but legacy fallback language and credit spread adjustments still matter.
Worked example
A bond with modified duration 4.5 and yield 5.00% experiences a 40 bp yield increase. Approximate price change is negative 4.5 times 0.0040, or negative 1.80%. On a $20 million position, that is about a $360,000 mark-to-market loss. Rule of thumb: duration times the yield change in decimal form gives the percentage price move; use it for quick sensitivity checks, not precise pricing.