Approach to Bond Valuation

Depends on the asset class (IG/HY/Loans/TSY's, etc..) but here are some solid books: Fabozzi, High Yield Debt by Bagaria, Moyers for Distressed

Outside of behavioral questions I would know the following...

1. Duration - there different types but you can google this.

General Rule: For every 1% change in interest rates (increase or decrease), a bond's price will change approximately 1% in the opposite direction, for every year of duration

Some Duration Principals (again google this and understand what duration is intuitively so you can answer any interview question regardless of how its worded/structured):

• As maturity increases, duration increases, (assuming coupon held constant) and the bond becomes more volatile
• As a bond's coupon increases, its duration decreases, and the bond becomes less volatile (get paid higher coupons earlier)
• As interest rates increase, duration decreases and the bond's sensitivity to further interest rate increases goes down
• The duration of a zero coupon bond = time to maturity
• Duration level of perpetuity is (1+y)/y. At a 10%  yield, the duration of perpetuity that pays $100 annually will = 1.10 / .10 = 11 11 years.

2. Convexity and negative convexity 

3. Sources of return - carry and roll

4. Know what YTM, YTC, YTW are

5. Read up on the Fed and what they're doing

6. Know what key credit metrics to look at, such as Debt/EBITDA, how many turns of leverage is acceptable or considered too high?