Yield Curves and Bond Ratings Tutorial
This tutorial provides students with an introduction to understanding bond yield curves and the bond rating process for corporate and sovereign debt. The topics are broken out into two main sections, and serve as important background to any discussion of global capital markets. The first topic involves the yield curve, which is simply a snapshot of interest rates on bonds of differing maturities at a specific moment in time. The second topic involves bond ratings. Bond ratings are a critical determinant of both a borrower's access to funds, as well as the interest rate a borrower will have to pay to obtain funds.
To understand the yield curve, Professor Fruhan suggests that you need to be able to explain two of its characteristics. These characteristics are its level and its shape. The first questions addressed within the tutorial are, "What factors drive the level of interest rates reflected in the yield curve, and why is the yield curve, as shown in one of the exhibits, upward-sloping, meaning that the interest rate rises as debt maturities lengthen?" Additionally, the tutorial examines the risk premium paid by corporate borrowers whose debt securities fall into different risk categories. Each lesson and explanation builds on the notion of the yield curve, and adds in judgments provided by independent bond rating agencies about the risk of specific debt securities.
The tutorial's modular design allows students to review each section in order of preference based on their pre-existing knowledge of the material. Whether students are new to these topics, possibly learning them for the very first time, or highly knowledgeable, they may only wish to review the summaries. The tutorial serves varied audiences well by presenting useful information in a clear, easy-to-follow environment.
Providing this material online gives students more flexibility when preparing for class discussion. With several case studies, as well as other assignments to prepare each night, a student's schedule can be extremely full. The converse is also true. Valuable class time might be wasted if too much of that time is used covering the basics. This tutorial, like most created for similar audiences, helps level the playing field of knowledge among students. The goal is simple: If students are better prepared for class, professors are in a greater position to create the best environment for class discussion and learning.
The Yield Curves and Bond Ratings tutorial is another example of using multimedia to enhance the teaching and learning of complex subjects. The online lessons are available 24 X 7, and are supported by audio and visual reinforcements such as animations, graphics, and narration, creating additional flexibility to the learning approach. Professor Fruhan agrees: "Creating and using courseware as preparation material replaces the need for a full class on the topic. Additionally, it supplements a class we have at Harvard Business School on the global financial system."
For more information and to purchase the Yield Curves tutorial, go to HBS Publishing.