  The notion of a credit spread curve is fundamental in fixed income investing,
but in practice it is not `given' and needs to be constructed from bond prices
either for a particular issuer, or for a sector rating-by-rating. Rather than
attempting to fit spreads -- and as we discuss here, the Z-spread is unsuitable
-- we fit parametrised survival curves. By deriving a valuation formula for a
risky bond, we explain and avoid the problem that bonds with a high dollar
price trade at a higher yield or spread than those with low dollar price (at
the same maturity point), even though they do not necessarily offer better
value. In fact, a concise treatment of this effect is elusive, and much of the
academic literature on risky bond pricing, including a well-known paper by
Duffie and Singleton (1997), is fundamentally incorrect. We then proceed to
show how to calculate carry, rolldown and relative value for bonds/CDS. Also,
once curve construction has been programmed and automated we can run it
historically and assess the way a curve has moved over time. This provides the
necessary grounding for econometric and arbitrage-free models of curve
dynamics, which will be pursued in later work, as well as assessing how the
perceived relative value of a particular instrument varies over time.
