Is there any literature discussing the economics of trading fixed income securities? I was asked in an interview the other day how I would trade/construct a bond portfolio if a) the fed raised rates and b) the bureau released lower than expected inflation. While I'm aware that the fed funds rate (in some broad sense) has an impact on a broad variety of interest rates, I don't have a more precise knowledge of what sorts of securities the fed funds rate might affect. Thankfully I was curious about this question before my interview, and had seen this question on the stack exchange, so I responded with: "short-term securities on the left-most part of the term structure."

What is the connection between the federal funds rate and US government bonds

I didn't understand how to trade lower-than-expected inflation, but I remembered hearing a mantra that the long-term part of the term structure is affected by long-run-growth expectations, so I tried to make a flimsy connection between the two.

In any case, the books and articles I have looked at on fixed income don't seem to really address these sorts of questions. I have seen how to price swaps, callable bonds, caps, floors, etc. but very little about the intuitive macroeconomics that you might think about when trading the instruments. Is there a good book or set of articles that talks about this sort of thing?


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