Editing Fixed Income (section)

== <span style="color: #FFFFFF;">Understanding</span> ==
Fixed income is understood through '''The Seesaw of Interest Rates'''.

'''1. The Inverse Relationship''':
The most important rule in bonds: '''When interest rates go Up, bond prices go Down.'''
* Imagine you own a bond that pays 3%.
* Suddenly, the bank starts offering new bonds that pay 5%.
* Nobody wants your "old" 3% bond anymore. To sell it, you have to lower the price.

'''2. The Risk-Return Tradeoff''':
* '''Government Bonds''': Low risk, low return. You know you'll get your money back, but you won't get rich.
* '''Junk Bonds (High Yield)''': High risk, high return. You get a huge 10% coupon, but there's a chance the company will go bankrupt and you'll lose everything.

'''3. The Yield Curve''':
Normally, the longer you lend money, the higher the interest you should get (because "the future is uncertain").
* '''Normal Curve''': Higher rates for 30-year bonds than 2-year bonds.
* '''Inverted Curve''': When 2-year bonds pay ''more'' than 30-year bonds. This is the "Grim Reaper" of economics—it has predicted almost every recession in modern history.

'''Duration''': This is a measure of how "Sensitive" a bond is to interest rate changes. A bond with a 10-year duration will lose about 10% of its value if interest rates rise by 1%. This is why "Long-term" bonds are much riskier than "Short-term" bonds when inflation is high.
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