Approach to Bond Valuation
Have an interview coming up for corporate credit position in LO fund. I've worked in ER for past few years, and cover some highly levered companies so I am comfortable building out debt flow in a model, and the modeling/assumptions/thesis creation. But have not worked specifically with bond valuation/investing. What sort of questions should I be prepared for, as well as any insight/good resources into the methodology for credit investing would be helpful
Following
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):
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?
I have an unrelated question, if you don't mind
Regarding bond duration, I spent a lot of time on this in senior year when I was prepping for CFA level 1 and it felt like something very essential, I thought like everyone close to FI should know all about it as a prerequisite (same goes for other other subjects as well)
If OP is already experienced, they don't assume he/she is already knowledgeable about it?
Very helpful, thank you! It is in IG/HY, would I be correct in assuming the majority of the analysis/investment process is the same?
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