Fixed-income interview help... does anybody have any suggestions/experience?

andrewdc's picture
Rank: Chimp | 6

I am going in for a final round interview at a bank that focuses primarily on fixed-income. The recruiter told me to prepare for 100% technical questions regarding DCM and FI, however, it feels as though there is so much to cover. Does anyone have any suggestions, experience, or knowledge of specific questions that will be asked? I would love to go in and nail all their questions, so any advice is much appreciated.

Comments (185)

Oct 21, 2006
andrewdc:

I am going in for a final round interview at a bank that focuses primarily on fixed-income. The recruiter told me to prepare for 100% technical questions regarding DCM and FI, however, it feels as though there is so much to cover. Does anyone have any suggestions, experience, or knowledge of specific questions that will be asked? I would love to go in and nail all their questions, so any advice is much appreciated.

I'll give you a set of questions I got as well as what I heard other candidates in my final round got:

  • What is duration? How is it calculated?
  • Term structures? Yield curves, their shapes and
    how do you make money on the various ones?
  • What's the present yield curve look like here (Canada) and there? (USA)
  • Tell me some of the different bonds you know about...what about their prices with respect to each other? (Plain vanilla/convertible/callable)
  • If interest rates go up/down...what would you do with a bond that is presently variable in coupon rate that has a convert option to a fixed coupon bond?
  • Show me how to do a DCF.
Oct 21, 2006

have a strong view on global fixed income market

Oct 22, 2006

does anyone know of any websites/books that can help with these questions that monkeybusiness threw out? I'm on a buyside trading desk and feel that my knowledge of the markets is definitely not up to par. For my particular job, it really does not have to be ( a monkey can do it) but obviously I plan on moving up, doing something different, possibly moving to sell side at some point, so I need to learn as much as I can. any suggestions?

Oct 22, 2006

just google, most of the info is easy to find.

Jan 11, 2007

I also want to break into DCM. Apart from applying and applying, I am also learning somthing every day still. Can you please give a tip on which spreasheets and to which moments in financial statement analysis I shoul pay more attention to be able to handle DCM role, origination or structuring in particular?

Open to all, closed to prejudice

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Jan 11, 2007

I'm going for an interview too, but if they ask questions like these... i'm screwed

Jan 11, 2007

...I trade US interest rate markets/FI...here is a list of books u should read if u want to further ur knowledge...

Fabozzi, US Treasury Securities and Derivatives
Hull, Options, Futures and Other Derivatives
Burghardt, The Treasury Bond Basis
Burghardt, The Eurodollar Futures and Options Handbook

...once u get done with those re-post and i'll give u more...

Sep 3, 2008

Does anyone have any suggestions about treasury associate interview?
Specific responsibilities will include: providing support
for existing businesses and trading strategies; facilitating the
implementation of new strategies; coordinating accounting, operations,
compliance, tax, and infrastructure issues; data analysis; and
development of systems specifications
any help would be appreciate. thank you

Sep 3, 2008

I would think since your not finance they may want to see if you know the math behind fixed income like how to price a bond and how to find some key stats about them like duration. Just make sure you know the time value of money and basics about what happens to bond price when interest rates fall or drop.

Sep 3, 2008

what questions were you asked in your previous rounds?

Sep 3, 2008

I shall def. read up and review on bonds and their pricing. Anyone know a good source besides investopedia or vault guide?

and as for the first round it was a phone interview with similar question such as "why fixed income, why emerging markets". I said because they are more predictable, quantitative based with not as much volatility. and I said emerging markets have a good forecast in the future. something of the sort.

Now I expect to be asked the same question in my in person interview but I want a more detailed, in depth answer prepared.

-thanks

Sep 3, 2008

Say you worked in a part of finance that dealt with equities and you didn't enjoy it/thought you would be better suited for FI- quantitative, etc.

For a good FI source get the Fabozzi book.. I'm sure more people will recommend this book.

Sep 3, 2008

yes through my research I know that several people speak very highly of that book for fixed income. But my interview will be coming up sometime soon this week so I was wondering if there were any good online sources on the web (still looking for the fabozzi e-book online of course)

anyone have any particularly good reasons for picking emerging markets of have experience in that?

-thanks

Sep 3, 2008

Fabozzi's fixed income book is great, he lays everything out in an understandable manner. I have tuckman's as well, but I prefer Fabozzi's. What you would be helpful for this interview is how to price a bond, bond sensitivity (duration, convexity), different fixed income products (treasuries, mbs, swaps, cds, corporate debt). Brush up on some recent happenings in the bond markets. As long as you can show interest in fixed income and why you want to do it you should be fine. You could probably talk about emerging market cds, or relative performance of a countries debt. Have a trade idea, i doubt it has to be centered on emerging markets. You could make it a play off the S&P downgrade, or how single name CDS is going nuts right now with this volatility. Or the general structure of the tsy yield curve (pitch a steepener or flattener trade). Anything along those lines would probably impress the interviewer because most kids will just pitch equities. I would look into some of the countries you would cover, see what risks are involved for those countries and companies and how they would affect bond prices. I have a pretty solid bond primer that I could send you too.

Sep 3, 2008

thanks cpops16 I would appreciate the primer

Sep 3, 2008

We can give you reasons about why EM but why do YOU want to do EM? There has to be some exposure that has led you to EM.. talk about that and how it excites you, etc. This board is not here to give you answers to interview questions but more to help you out and guide you so that you are a better interviewer and hopefully, employee. Put some of your own answers down and people can give feedback on those..

Sep 3, 2008

Well I initially just blurted out investment grade bonds in my phone interview because they never told me about any specific division. But then they called me back and said that because of my Political science degree I would make a better fit in EM so I said yes because I wanted the interview and EM is still very interesting.

My answer would go along the lines of: i find Em interesting because I believe that there is a vast growth opportunity in some of these nations. They are becoming more politcally stable and are running trade surpluses which is leading to better economic outlook. Thus, it is a very good market to try and tap into.

Sep 3, 2008

any additional input?

Sep 3, 2008

dude there's a lot more to talk about regarding EMs than just that... why don't you do some research and figure it out. I'll give you a hint: population. There are a lot of easy ways to pitch plays off of whole new consumer classes emerging.

Sep 3, 2008

Dude you need to stop looking at the interview like a fucking test and be honest. You want EM because it is fucking cool. You get to deal with a large variety of products and cover different countries. EM investments are becoming more popular BC they offer better yields, but at the same time there are a slew of risks that they possess that DM don't have--political, regional, ect.

You want advice for a fixed income interview, check out Gekko's interview guide part 2 (you might also want to check out part 1).

Sep 3, 2008

AM firms in my experience look for a strong demonstrated interest in the area you would be working in. Be able to speak not only about the world economy and some current issues, but also about the High Yield Fixed Income area.

There's some good white papers out there on this and publications that AM firms typically put out on their websites. So for HY FI, talk about what's been popular and what hasn't (i.e. Structured Products and High Yield Corporate/Bank Loans for example have benefitted tremendously from QE and low interest rates, whereas Junk Bonds have taken a hit as yields have declined, etc...). You get the idea. This shows you're keeping up with the market and have a general interest in it.

Also be prepared for Technicals about specific companies/industries, how you can interpret & manage financial statements, etc..

Even though I had limited knowledge in this area when I was interviewing, I was still asked these questions. One AM firm I interviewed with for FI, nearly 75% of the questions I was asked in multiple rounds were technicals. This doesn't always happen, especially for SA but it couldn't hurt to be prepared. Also, if you don't know something just preface your answer by saying "I'm not exactly sure, but let me walk you through my reasoning."

Sep 3, 2008

Any HY FI specific technicals? Thanks for the advice!

Sep 3, 2008

I'd recommend making a HY bond pitch.

Sep 3, 2008

Ok will do. Where would I be able to find out more? Any resources you'd recommend?
Excuse my ignorance but I've never done a HY bond pitch. How does this differ from a stock pitch?

Sep 3, 2008

Just know basic credit metrics (EBITDA, FCF, Gross&Net Leverage, et al), how accounting statements flow, and basic HY trading (trading to next call, YTW) and finally probably good to know basic covenants (RPs, limit on debt & liens, carve-outs, financial/maintenance covs)

Sep 3, 2008

bump*

does anyone have brainteasers/puzzles to share?

Sep 3, 2008

i interviewed for a derivatives job..swaps

they asked the diff between Zero curve and yield curve...
you should know how to explain bootstrapping...
also know a little about FRA.

asked me about delta of options...if my option is at the money...how much of the underlying do i need to have to hedge..do i go long short? assuming im initailly long

what is my worst trade?

thats it..
be very political..i interview with 6 diff ppl in one day..you must remember that you need to adapt to EACH ONE!! they want to see if you fit...think about it constantly. You will meet the hotshot, the nerd, the bitch..adapt

Sep 3, 2008

thanks a lot. i appreciate the feedback

Sep 3, 2008

know a bit about the market...for brainteasers, well here's one.

I give you two envelopes, the one has twice the amount of money as the other. You pick one, and I give you the option to switch. do you switch or not?

Sep 3, 2008

That's not really a brainteaser as a math question though, right?

50% chance of 1/2x = 1/4x + 50% chance of 2x = x, so you get an expected value of 1.25x.

(x, of course, is the amount in your envelope)

--------
Right now this is a job. If I advance any higher in this company, then this would be my career. And um... Well, if this were my career, I'd have to throw myself in front of a train.

Sep 3, 2008

so you'd switch?

Sep 3, 2008

and what if you'd picked the other envelope first?, and if you would switch, if i give you the opportunity to switch again what do you do?

Sep 3, 2008

and btw, most FI brainteasers are math based.

Sep 3, 2008

I believe I read this in Crack's book. You keep switching based on merkhet's EV calculation.

Sep 3, 2008

"You keep switching based on merkhet's EV calculation."

so you'd just sit there and continuously switch back and forth? does that make any sense at all?

Sep 3, 2008

If I'd picked the other envelope first, the calculation is the same since the envelope I picked in the first situation would then be unknown and would have the same percentages and payoffs tacked to it.

Since I would switch, if you gave me the opportunity to switch again... well, I'd know what was in both envelopes, so that'd depend on which envelope has more money in it. (Or perhaps I'm not understanding the second iteration of your question.)

Why would I keep switching back and forth?

--------
Right now this is a job. If I advance any higher in this company, then this would be my career. And um... Well, if this were my career, I'd have to throw myself in front of a train.

Sep 3, 2008

Ahh... the exchange paradox. Reconsider the nature of your prior beliefs and the e(v) is actually zero. if you want to be smart, also mention that e(v) = e(utility) only when you are risk neutral.

Sep 3, 2008

Maybe I am being dumb, but it sounds like the expected value is being overthought. I wouldn't think it would matter whether you switch or not since there are only 2 envelopes, so wouldn't the second event (the switch) be exactly the same as the first (the pick)? Or am I missing something with the EV?

Sep 3, 2008

Oh, I see. I looked up exchange paradox from Sherminator's post... I had understood that I got to look inside my envelopes.

Interesting paradox.

Also, isn't this essentially the same question as that one brainteaser with three doors in it? If you choose one door, does that affect the probabilities associated with the other two doors? (I can't remember the name of the other brainteaser.)

--------
Right now this is a job. If I advance any higher in this company, then this would be my career. And um... Well, if this were my career, I'd have to throw myself in front of a train.

Sep 3, 2008

"Why would I keep switching back and forth?"

you're saying you'd switch in the first instance. but your reasoning applies again post switch. so you'd keep switching always expecting 5x/4 in the other envelope if you've never looked at the initial value.

Revsly gets the answer correct, and if you are interested in trying to come up with probability distributions for unbounded sets, you can do some more research yourself.

Sep 3, 2008

"Also, isn't this essentially the same question as that one brainteaser with three doors in it? If you choose one door, does that affect the probabilities associated with the other two doors? (I can't remember the name of the other brainteaser.)"

the monty hall problem? no, this is very different.

the doors is like this, from wikipedia

"Suppose you're on a game show, and you're given the choice of three doors: Behind one door is a car; behind the others, goats. You pick a door, say No. 1, and the host, who knows what's behind the doors, opens another door, say No. 3, which has a goat. He then says to you, "Do you want to pick door No. 2?" Is it to your advantage to switch your choice?"

What do you think?

Sep 3, 2008

"Oh, I see. I looked up exchange paradox from Sherminator's post... I had understood that I got to look inside my envelopes. "

Fine, you get the first envelope, and you look at its value. You are now given the option to switch, should you take it? and more relevant, what would you pay to switch?

Jimbo

Sep 3, 2008

As long as you have no idea which amount X and 2X... its the same situation, no? So even if you look and see $500, you wouldn't know whether that is the smaller (other has $1000) or the larger (other has $250). So its theoretically the same situation as not looking.

Sep 3, 2008

sure...so you look at see $500. The other has $250 or $1000 right? Do you switch then?

Sep 3, 2008
Jimbo:

sure...so you look at see $500. The other has $250 or $1000 right? Do you switch then?

I would switch because the EV of the new choice is higher (0.5*(250+1000)) than the 500.

Sep 3, 2008

a brainteaser I've been asked numerous time "what the sum of numbers 0-100? and How did you get your answer"

Sep 3, 2008

that one is much too easy....100x50+50.

Sep 3, 2008

yes, but I've been asked it on more that 1 occasion so I thought I'd put it out there

Sep 3, 2008

fair enough. what others have you gotten?

Sep 3, 2008

I had a series of shot gun multiplication question such as 8x8x8 followed by 9x9x9...

-How much would you pay to roll a 6 sided die...I forgot the details it was an expected value question I got the correct answer though...

  • b
  •  Sep 3, 2008
girlytrader:

I had a series of shot gun multiplication question such as 8x8x8 followed by 9x9x9...

-How much would you pay to roll a 6 sided die...I forgot the details it was an expected value question I got the correct answer though...

Did you happen to be interviewing for Citi or JPM?

I got the exact same questions (at both places)... although I was asked from 6^3 up to 9^3. Regarding the die; the question states that you get $1 for each unit value in the role... how much would you pay to play this game (anything less than $3.50).

Sep 3, 2008

Good point. It shouldn't matter whether you look in the envelope or not since originally, prior to picking either envelope, you should have a EV of 1.5X.

As for the Monty Hall problem, you do always switch. Since the guy always reveals a goat for you, either (1) you've picked the car and switching leaves you with a goat, (2) you've picked a goat and switching gives you a car, or (3) you've picked a goat and switching gives you a car. 66 2/3% chance.

The sum thing is rather easy because you just group 100s until you are left with an ungrouped 50.

I'm still somewhat bothered by the exchange paradox. I think the disparity comes from perspective. Comparing both envelopes simultaneously versus comparing one envelope using the other envelope as a baseline changes something. Though I've no idea what that could posibly change.

--------
Right now this is a job. If I advance any higher in this company, then this would be my career. And um... Well, if this were my career, I'd have to throw myself in front of a train.

Sep 3, 2008

I just thought of something. If you've heard these problems before, what's the point of the brainteaser? Doesn't it go from being an aptitude test to being a memory test?

--------
Right now this is a job. If I advance any higher in this company, then this would be my career. And um... Well, if this were my career, I'd have to throw myself in front of a train.

Sep 3, 2008

"I'm still somewhat bothered by the exchange paradox. I think the disparity comes from perspective. Comparing both envelopes simultaneously versus comparing one envelope using the other envelope as a baseline changes something. Though I've no idea what that could posibly change."

you cannot make any claim about the nature of the distribution of the money in the envelopes.

Sep 3, 2008

Ok I think I figured it out. If you knew beforehand that the Letter contained 500, the original EV would become EV= .5(500) + .25(1000) + .25(250)= 625. So it is the same expected value as if you were to switch. Does that make any sense?

Sep 3, 2008
Revsly:

Ok I think I figured it out. If you knew beforehand that the Letter contained 500, the original EV would become EV= .5(500) + .25(1000) + .25(250)= 625. So it is the same expected value as if you were to switch. Does that make any sense?

I know this isn't the answer to the question, but...

.5(500) + .25(1000) + .25(250) != 625

might want to double check that.

Sep 3, 2008

"Ok I think I figured it out. If you knew beforehand that the Letter contained 500, the original EV would become EV= .5(500) + .25(1000) + .25(250)= 625. So it is the same expected value as if you were to switch. Does that make any sense?"

so you are saying the expected value of either envelope is 625, and if you are holding the $500, would you switch?

I think i need to get some envelopes and start doing this....

  • b
  •  Sep 3, 2008

People are obviously over-complicating this problem. It makes no difference whether you switch. Don't look at it terms of what envelope you choose, look at it in terms of two envelopes sitting on the table. There is a 100% chance that one envelope has $X and a 100% chance that the other envelope has $2X. No matter which you choose, you have a 50% chance of getting $X and a 50% chance of getting $2X. Switching does not affect these probabilities.

  • b
  •  Sep 3, 2008

If you want to put a dollar value on the problem, you can say that one envelope has $500. No matter what, the other envelope already has $250 or $1000 -- but they both can't be true. In this case, if you switch, you either have a 100% chance of losing $250 or a 100% chance of gaining $500 - not 50/50. But, you don't know which outcome will occur, so it makes no difference whether you switch.

Sep 3, 2008

Agree with b that switching doeesn't matter.

You know that your envelope contains either x or 2x, such that your expected return from switching is 1.25x (50%1/2x + 50%2x = 1.25x); however, regardless of whether you've been shown the amount of money in the envelope, you will not know the value of x (since $500 could represent x or 2x) and as such will have no incentive to switch.

Sep 3, 2008

I was trying to say you don't switch... or at least you are "switch neutral," meaning you don't care. I was using that EV calculation to show that using the original expected value it wouldn't matter whether you open the envelope or not, your Expected Values will always equal, meaning you are indifferent. There would be no reason to think switching would give you any advantage. Perhaps the way I said it before wasn't so clear; so to be clearer, I wouldn't be inclined to switch in either case. Yeah, perhaps breaking out some envelopes would have been helpful haha.

Sep 3, 2008

B -- I did interview for Citi but these questions were not from Citi....yup 3.50 was the correct answer....

Jimbo what do you trade????

Sep 3, 2008

I got asked bunch of options technical, literally got bombarded. Math teaser? Sqrt of 4000. I said near 64, actually 63.25.

Sep 3, 2008

Hahaha, you are right, I completely went downhill after deciding you shouldn't switch and I think my brain was desperately searching for justification and decided that was an answer. I need to sleep more and learn how to do division... I swear, its always the stupid errors that get me :)

  • b
  •  Sep 3, 2008

girlytrader - interesting. I actually got the cubed questions at JPM (in the same shotgun format) and the die question at Citi.
I'm going to have to assume that you were interviewed by "Marty" of JPM then. I don't imagine many other people who would shotgun cubed questions (unless this is a new Street trend). As there was only 1 female at my superday... I just want to verify (b/c this would be a crazy coincidence it it were true) - please tell me that you don't go to McGill University.

brick - how did you solve that? Is there a trick?

Sep 3, 2008
b:

girlytrader - interesting. I actually got the cubed questions at JPM (in the same shotgun format) and the die question at Citi.
I'm going to have to assume that you were interviewed by "Marty" of JPM then. I don't imagine many other people who would shotgun cubed questions (unless this is a new Street trend). As there was only 1 female at my superday... I just want to verify (b/c this would be a crazy coincidence it it were true) - please tell me that you don't go to McGill University.

brick - how did you solve that? Is there a trick?

I would just think round numbers and then narrow down. So you know 4000 is between 60^2=3600 & 70^2=4900, then it is closer to 60 than 70... you could keep narrowing (like it needs to be less than 65 since 65^2=4225, probably closer to 65 than to 60, so guess a little over halfway, like 63 or 64) or just take a guess at that point. I'm sure there is a better way, but this seems to work for me

Sep 3, 2008

well you could do mental square roots. but i think brick just did a quick guess based on intuition.

http://www.homeschoolmath.net/teaching/sqr-algorit...

Sep 3, 2008

Nearly same approach as Revsly. Figured 4000=40*100. Take out the 100 which is 10^2. 40 is between 6^2 and 7^2 and should be more on left side of 6.5 than right. And then just guess and multiply with with 10.

Sep 3, 2008

Ummm.... SQRT 4000 = 20 * SQRT(10) = 20* ~3.2 = ~ 64

Why are people using 65^2 = 4225?!

Sep 3, 2008

sherm thats a very good way to solve it fast.

Sep 3, 2008

I did not interview at JPM .... I said I interviewed at Citi but that was for a SA position and I was not asked any brainteasers

I was asked all these questions at the BB that I was an SA at and will be a FT trader at next July...sorry

Sep 3, 2008

Jimbo,

the envelope question: if you peek at it, doesn't it become subjective whether it is high or not? and then that usually affects a person's willingness to switch (or not).

Sep 3, 2008

jimbo, are you in FI?
can you explain to me the convexity adjustment for a CMS swap?
(seriously, thanks for your help)

Sep 3, 2008

"jimbo, are you in FI?
can you explain to me the convexity adjustment for a CMS swap?
(seriously, thanks for your help)"

what it is, or why it exists, or the ramifications?

Sep 3, 2008

i still don't get the envelope question.

i agree that in jimpos original question with only two envelopes switching is not profitable.

however, when you have three envelopes and have one with $500 in your hand I would switch if I knew that in the other two envelopes are $250 or $1000. I mean you either loose $250 or win $500, chances for both are 50%....aren't they?

Sep 3, 2008
dudester:

i still don't get the envelope question.

i agree that in jimpos original question with only two envelopes switching is not profitable.

however, when you have three envelopes and have one with $500 in your hand I would switch if I knew that in the other two envelopes are $250 or $1000. I mean you either loose $250 or win $500, chances for both are 50%....aren't they?

The brainteaser aspect of this question is its counterintuitive nature. Switching results in a return of 1.25x (x being the lower amount, and 2x being the higher amount). However, after looking in the envelope, while you will know the amount you are holding, you still don't know the value of x, so switching (or not switching) makes absolutely no difference.

Sep 3, 2008

i thought one knows that in the other two envelopes are $250 and $1000?

and why is x the lower amount and 2x the higher amount? wouldn't it have to be 1/2x(=250) and 2x(=1000)?

and if the return is 1.25x (=625) why wouldn't I switch?

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Sep 3, 2008

Is this for Morgan Stanley or BlackRock?

"I do not think that there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature."

Sep 3, 2008

Neither of those. This place only has ~1500 employees at their NY (headquarters) office.

Sep 3, 2008

Dont expect many technical questions, other than the typical basic bond pricing (even that might be unlikely), but know what is going on in the Bond Market
Be prepared for brain teasers, especially since it is a trading role.
Focus on fit in addition to the brain teasers.

Sep 3, 2008

try to know a product in FI you like (bonds, rates, cdo, etc). more quantitative analysis sure, more intellectual, deeper analysis. interest in derivative products (ie for bonds you understand cds lcds etc as well as equities)

Sep 3, 2008

Here are some things that comes to mind:
Learn about duration, convexity, basic bond mathematics, and different types of fixed income products (Treasuries, Agencies, Muni's, Corporate Bonds, MBS, ABS, CDO, Interest Rate Swaps, etc)
And understand monetary policies of easing and tightening of money supply and how that affects the interest rates and bond prices.

    • 2
Sep 3, 2008

Hey I_feel_capital, thank you so much! I appreciate it alot.
When you say learn about duration, convexity and basic bond math - I am just expected to at least know the definition and equation right? Like they wouldn't expect me to know much fancier than that?

So besides this, I get the idea that I should keep up with monetary policies news, macro news. Does any one know anything about FI pitches?

Thanks alot,

Sep 3, 2008

An interview question might be: "give me a concise argument for why I should short rates in the near future. And also why I should long rates."

As for duration and convexity, you should know the definition/equations and the dynamics of the price yield curve. Also know how the maturity levels affect the duration and perhaps how options(puts and calls) affect the convexity as well(negative convexity). I really don't think they will ask you about multifactor interest rate modelling questions for intro FICC positions or anything too quant.

Fixed income is a pretty math intensive subject so a good place to start is the CFA level1 section on fixed income. You can get a full review in investopedia if you don't have access to the CFA review books.

Good luck

    • 1
Sep 3, 2008

btw if there are any formula that I should specifically memorize, please let me know! thank you!

Sep 3, 2008

Acquaint yourself with the major types of bonds, Ginnies, Fannies, Freddies, Corporates, Munis, Steps, Callable/ Non Callable. Understand the basic relationship between yield and price, difference between average life and average maturity. Understand what duration is. You could read some of Bill Gross's most recent letters to help you stay informed of what's going on in the market. Basically this has been a bond year for the ages with the 10 year under 2, and the 30 year under 3.
Familiarize yourself yourself with BondEdge software if you have a chance to look at it. Also if you can get your hands on it, look at the CFA Level II Fixed Income section, it does a pretty good job breaking it down.

Sep 3, 2008

As for formulas, you could learn binomial trees for pricing callables/ non callables, also calculating OAS. As far as formulas, Bond Edge does most of the calcs, just know that as rates go up bond prices go down. And the total return you'll get on bonds is coupon + price appreciation.

Sep 3, 2008

I don't think a liberal arts background needs to build bionmials from scratch with assumptions he doesnt have. Maybe have the theory / inverse price/yield relationship / different bonds and their properties
CFA LII material will be too much? I dont think you can pick it up in a week. Thats just my opinion. However its prob best to know more than less.

Sep 3, 2008

yeah go through the CFA material (level 1 might be helpful too, idk how much you really learned from investopedia so far) and that should allow you to understand what's going on in the market right now. there's so much going on with bonds right now which is good in a sense since you have a lot to read up on but make sure you're able to deal with any sort of hypothetical situations that will probably be brought up. make sure you have a solid and concise explanation of what's going on in europe right now

Sep 3, 2008

Know terms and calculations (yields, pricing, dv01 etc..). Know current market info like IG and HY outlook.

I'd read Liars Poker if you have the time too....

Sep 3, 2008

Read liar's poker if you get the gig. Before the interview you need to have a very solid understanding of what's going on in the markets as well as basics of bonds math (like mentioned above). You WILL get asked "what do you think is going on in the markets right now?" at least in some form and that's probably the most important question to nail.

Sep 3, 2008

Fixed income is VERY broad, no way to be perfectly prepared. in terms of prep id do the following:

1) read up a bit on every product (credit and CDS, rates, commodities, currencies, mortgages). Focus on the basics, try to find some introductory PDFs on basic terms etc. You should be able to asnwer questions like:
-given a CDS spread and recovery rate, calculate cumulative probability of default
-understand what influences duration of a bond
-know how to calculate pnl on a CDS give a change in spread and on a bond
-know why there can be a difference between a bond Z spread and a CDS spread (called CDS basis), have an opinion on where it should trade normally, and where it should trade in the times of stress
-know what the yield curves look like for major markets (US, GB, DE, JP) and swaps rates (EUR, USD, GBP) and how they have evolved over the past couple of years
-know what covered interest parity is
-know how prepayments affect mortgage products
-know where the various commodities trade and what their forward curves look like

2) Know where stuff is trading and have an opinion, doesnt need to be hugely complex, just be able to give a 2 minute pitch on what you would do on any of the following (this includes knowing what they have done over the past couple of years). You arent expected to be able to have an amazing trade idea on everything, but just be able to hold a conversation/argument.
-Major currencies, major commodities, yield curves, credit indices

3) Pick one area that really interests you and learn that in depth. If you need advice on a book let me know.

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Sep 3, 2008

@derivstrading is there a guide to any of that stuff? I'm looking to get into fixed income but haven't heard of half those things you mentioned.

Sep 3, 2008

Well MO/FO are very much different.

Regardless, I'm sure you should know duration, convexity, current yield, YTM, etc. Where money flows are going. Prepayment risk, interest rate risk, reinvestment risk....

Sep 3, 2008

Bond pricing and yields (as you mentioned), plus convexity, duration... it might get really technical.

Sep 3, 2008
Sep 3, 2008

That is a great help, thanks. Does anyone have any book recommendations on bonds? I have a math background so it can be somewhat quant heavy. Thoughts?

Sep 3, 2008

Read Fabiozzi

Sep 3, 2008

Vault guide. CFA level 1 and 2 fixed income sections are good, find some old schweser notes on a torrent or something.

Sep 3, 2008

Just know about the asset classes in which you're interested. Nothing shines brighter than genuine interest. However, it will all be for naught if you can't present well - this means knowing the standard bond math and other technicals, understanding what's happening in major markets, and speaking well.

Sep 3, 2008

Dude-literally read the first 10 chapters of fabozzie and follow markets. thats all. i killed all FI interviews with that.

Sep 3, 2008

the numbers are probably basis points and the T might be treasuries.

Sep 3, 2008

The fixed rate would be take a 3-year maturity T-note and add 18 basis points (0.18%) to it, it's fixed rate so that won't change. The floating-rate notes you'd have to get a better article but I'm guessing it's 30 day LIBOR + .07%, it depends on how often the rate resets on the floating-rate notes but I am guessing it's monthly.

Sep 3, 2008

It's normally 3M LIBOR, rather that 30 day LIBOR. The payments and resets on the FRNs are normally quarterly as well.

Sep 3, 2008

How is a BB still doing interviews? We finished up almost two months ago.

Sep 3, 2008

how about this "what is an interest rate swap". how would you price one? why do companies use them? why do hedge funds use them?

Sep 3, 2008

@bankerspi: I'm honestly not sure. I solidified mine about six weeks ago. He was unsuccessful after his final round at this bank, but he recently was cold called about this desk specifically and they're flying him up this week for a final round. My guess is someone reneged because of personal reasons or something.

@Jimbo: Yeah, that's what I told him to study. I guess I should have asked you guys more about whats the current swap market looking like. I'm doing IBD so I don't know a whole lot about the derivative markets at all...

Sep 3, 2008

it's looking pretty flat.

Sep 3, 2008

debt coverage, lbo risk

Sep 3, 2008

free cash flow- want to see this so they can pay down debt reduce overall leverage, also like to see an equity cushion, and coverage (in terms of EBITDA and reserves when looking at commodity type businesses)

avoid companies with lots of leverage, lots of secured debt ahead of you (if you want to buy unsecured)

these relate more to high yield

Sep 3, 2008

Thank you for your help. Does anyone know where I can find more/detalied information about this?

Sep 3, 2008

Anyone?

Sep 3, 2008

any help please?

Sep 3, 2008

Bump

Sep 3, 2008

I'd make sure you can explain duration & convexity backwards and forwards, know all the different structures (step-up notes, floaters, linked, etc), and the different types of yield curves and their meaning and implications. Basically all the fixed income stuff they test you on for CFA lvl 1. I'd try to find a CFA book or similar college textbook. I'd read through the glossary section of investinginbonds.com as well.

Sep 3, 2008

....

Sep 3, 2008

Edit: the below poster is right. the 10 year/30 year portfolio will have higher convexity, as it increases as a square of maturity.

Sep 3, 2008
rom831:

Was asked this in a interview, not sure if I got it right...

Which has a higher convexity, a 20-year zero coupon or an equal-duration combination of 10-year and 30-year zeros?

you can't find the formulas for convexity/duration/price online? you can't type them into an excel spreadsheet and were so clueless that you absolutely had to ask for help here?

Sep 3, 2008
MrSunKing:

you can't find the formulas for convexity/duration/price online? you can't type them into an excel spreadsheet and were so clueless that you absolutely had to ask for help here?

This, altho I dont agree with how its phrased, I do agree with the general principle. Find the equations, fire up the E* and find the convexity of these bonds. It will be a lot more effort, but in terms of knowledge gained it will be far better.

*No source needed I hope

Sep 3, 2008

This is bullet vs barbell. The barbell (combination of 10 and 30) has more convexity

Sep 3, 2008

Read some of the CRA sovereigns reports

Sep 3, 2008

I play tennis. Did you play him in a league match or something?

Sep 3, 2008

for chris$% sake!

your response really made me laugh..but its so damn impertinent.

On a regular court at 6pm...his partner didnt show up, mine didnt, and there was only one court...so we hit balls...

hope this answers your question

Sep 3, 2008

i like to study interest rates and credit risks.

Sep 3, 2008

Fixed income is typically a bit more quantitative than equity, so you may want to play that angle if you're a math stud

Sep 3, 2008

i said i am an engineer and like heavy quantitative stuff and FI is much more quantitative than equity research. i also said it involves a lot less guesswork than ER...

Sep 3, 2008

I said fixed income is a much bigger market as compared to equities.

Also fixed income comprises of a lot more products, not just bonds. (FX, Interest rate, Credit)

You can also say that despite its name, fixed income isn't quite fixed, volatility is common especially in the current climate, which makes it exciting to be in fixed income.

I got this question in my interview last week. Hope it helps and I would like to hear the comments from others as well.

Sep 3, 2008

Wow. That was not good typing on my part!

Let's try that again:

Hey guys, one opportunity I am interviewing for is with a large FI firm, one of the largets 10 or so.

How might this compare to, say, working in equity research as an associate/younger analyst at a BB?

Any thoughts?

Have I stumbled over a goldmine or is this nothing special.....thanks guys, FI is REALLY not my area of expertise!

Sep 3, 2008

They are 2 different animals- what would you be doing at the FI shop?

Sep 3, 2008

Heh. I know they are. For one thing, one is buy side, one sell side!

In ER I would be doing energy, chemical, and alt energy research.

At the FI firm I would also be doing some research, and also interfacing with their HF division, performing statistical analyses, and actually doing some trading. They claim the position will be about 60% equity research, 40% HF analyst work.

Does that make more sense now?

Sep 3, 2008

Anyone else? Sorry guys, I am trying to research quickly here, it is amazing how fast this process goes once it gets rolling!

Sep 3, 2008

Anyone else? Sorry guys, I am trying to research quickly here, it is amazing how fast this process goes once it gets rolling!

Sep 3, 2008

I was a buy side bond trader - and FI is boring. That my two cents - tons of statistical jargon to get caught up in, and success is measured in basis points - not sexy at all. But things depend on what you want to do afterwards. Credit reaseach is more universally applied to other positions in my mind, and I would want HF exposure over ER any day of the week. Thats me though.

Sep 3, 2008

Hey Bucs, I PM'ed you!

Sep 3, 2008

I would definitely go for the credit exposure. I think that the energy field is "hot" right now, and while that will continue to be the case with massive hirings in the short term a few years down the line that industry specific knowledge may not be that useful. Credit knowledge is always useful.

Then again you have the scientific background that maybe you can work in energy an dmaybe take yourself somewhere.

Sep 3, 2008

Fixed income/credit research vastly differs from equity research as a role. Equity research is it's own separate thing and is strictly client facing. Equity Research typically sits in their own bullpen not on the trading floor and is it's own bubble at the bank pretty much. Equity research reports are made for S&T clients. Traders may read them, but they are not the target audience.

On the FICC side, credit analysts sit on the trading floor and rather than publish pretty notes they chat with the traders on bloomberg and keep them updated on what's happening with the companys you're covering. Also credit research is not always a dedicated role. At MS FID they start every first year off in credit research for a year before allowing them to become traders or sales people and a lot of the more senior credit research people have at one point been traders or sales people. The role is a lot more fluid and less defined. While clients may have access to some notes you put out, 90% of what you do is to help your own bank's traders make money.

Sep 3, 2008
Raptor.45:

Fixed income/credit research vastly differs from equity research as a role. Equity research is it's own separate thing and is strictly client facing. Equity Research typically sits in their own bullpen not on the trading floor and is it's own bubble at the bank pretty much. Equity research reports are made for S&T clients. Traders may read them, but they are not the target audience.

On the FICC side, credit analysts sit on the trading floor and rather than publish pretty notes they chat with the traders on bloomberg and keep them updated on what's happening with the companys you're covering. Also credit research is not always a dedicated role. At MS FID they start every first year off in credit research for a year before allowing them to become traders or sales people and a lot of the more senior credit research people have at one point been traders or sales people. The role is a lot more fluid and less defined. While clients may have access to some notes you put out, 90% of what you do is to help your own bank's traders make money.

Thanks. I did not get that out of the job description at all. Do you mind if I PM you the link to the job to confirm the above-stated?

Sep 3, 2008

say that you prefer something more technical and quantitative.

Sep 3, 2008

Whatever you do dont say you like equity better because you want to work less hours and have more fun.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

Sep 3, 2008

he is applying to fixed income

Sep 3, 2008

you must be quant type

Sep 3, 2008

bump

Sep 3, 2008

that sounds like sales...sales people don't need any technical skills coming in...what they need to know the bank can easily teach...but "personality" cannot be taught.

The strats groups hire 2 types
1-phd rocket scientists
2-excel/programming gurus

Sales however hires primarily on fit and personality.

Sep 3, 2008

Won't the sales people need to know their stuff and the markets though? besides the math/programming I feel that they can't just hire a dummy who can shmooze people.

Sep 3, 2008
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Dream BIG.

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