Trading Fixed Income, Inflation and Credit Markets: A Book Retelling Series
This is the start of a retelling series where I break down a serious fixed income textbook into something you can actually read without falling asleep.
📖 Book: Trading the Fixed Income, Inflation and Credit Markets: A Relative Value Guide 👤 Authors: Neil C. Schofield, Troy Bowler 🔢 ISBN: 978-0-470-74229-7
Why This Book
Most finance textbooks have the same problem. You open them, read the first paragraph, and your brain checks out. The authors of this book actually acknowledge that in their preface. They wrote this book for people who are tired of paying good money for textbooks they only open once.
This is not a heavy academic text. If you want stochastic calculus and pages of proofs, go pick up Hull or Neftci. This book is different. It is rigorous, sure. But the goal is intuition first, theory second. The authors want you to actually understand what is going on before they throw formulas at you.
Both Schofield and Bowler have over 50 years of combined experience working in capital markets. Not in academia. In the actual markets. That matters because this book reads like someone explaining things at a desk, not lecturing from a podium.
What Is Relative Value Anyway
The core idea of this book is relative value. Most people hear that and think “cheap versus expensive.” Like, one bond is cheaper than another, so buy the cheap one. That is a valid interpretation, but the authors push it further.
Their definition: what is the best way to express a particular view of the market?
Think of it this way. Say you believe euro interest rates are going to fall. You could buy a bond. That works. But you could also buy a bond future. Or enter an interest rate swap where you receive fixed. Or trade an option that profits if rates drop. All of these express the same view. The question is which one gives you the best risk-adjusted return.
The book uses a framework of spot, forward, swap, and optionality to design trades across different asset classes. Every chapter builds on this framework.
What the Book Covers
The book has 9 chapters, and each one builds on what came before.
Chapter 1 starts with the basics. Bonds, repos, credit fundamentals, and derivatives. If you already know your stuff, you can skim it. But it is a solid refresher.
Chapter 2 introduces the relative value framework itself. It looks at pricing relationships between spot, forward, swap, and volatility markets. This is where the real thinking begins.
Chapter 3 extends those pricing relationships into market risk. How do you measure the risk of these instruments? How do they behave when things move?
Chapter 4 applies the framework to fixed income trading. This is where theory meets practice.
Chapter 5 takes the traditional cheap/rich approach to sovereign bonds. Classic relative value in the way most people think about it.
Chapter 6 gets into yield curve trades. If you think the curve is going to steepen or flatten, how do you actually trade that?
Chapters 7 and 8 apply the framework to credit and inflation markets, respectively. Same tools, different asset classes.
Chapter 9 wraps things up with some trading axioms. The authors describe it as “light-hearted,” which in a finance textbook means it is probably the most useful chapter for your actual P&L.
What You Will Get From This Series
I am going to retell each chapter in plain language. No jargon walls. No “obviously” followed by something that is not obvious at all.
Each post will cover a chapter (sometimes two if they are short). I will explain the key concepts, add my own thoughts, and try to make it all stick.
This is a Wiley Finance series book. That means it has credibility. But credibility does not mean readability. That is where this series comes in.
One thing the authors mention that I love: forward prices are not expected prices. If that sentence confuses you, good. By the end of this series, you will understand exactly what it means and why most financial commentators get it wrong.
Who Should Follow Along
This series is for you if:
- You are studying finance and want to actually understand fixed income
- You are starting a career in markets and need practical knowledge
- You already work in finance but want a refresher on relative value concepts
- You are just curious about how bond, credit, and inflation markets work
You do not need a PhD. You do not need to know calculus. You just need to be willing to think through things step by step.
Let’s get into it.