Fixed income Trader technical interview
Hello,
I have a technical interview for an internship FI trader, and my background is mostly mathematics.
I would like to know if any of you can help with some recent questions on FI trading entry level?
There is a lot to know and I would like to focus on the most important things.
Thank you very much for your help
Why don't you post your questions and the community can come back and help you out. With a math background I am sure you pass the are you smart test but have you spent time to learn about fixed income to want the internship you are interviewing for.
At a minimum, you should know how a bond works, the different types of bonds and some bond math and what duration is. But I'm learning all this as well and we can all learn together.
I feel like there is so much to know, and i wonder if anyone knows what recent questions have been asked for FI trader internship? Should I know all the pricing methods? Valuations? Should I know immunization ?ALM?FRA? Can you please be more specific about bond math? Like what mandatory demonstrations/computations should I focus on?
If they have a sensible interview process, probably understand philosophically what it means to discount cash flows/calculate NPV (time value of money), yield to maturity vs price relationship, bond duration (modified duration and dollar duration) and convexity (look on wikipedia, very simple). Also high level what drives rates (central banks control the short end, do not control the long end). Rates sensitivities to growth/inflation.
I would consider these the basics.
..
answer these 3 questions
customer hits you on 2 bln 10yr notes...what are your hedging options?
customer hits you on 2 bln 30yr zero coupons...what are your hedging options?
customer hits you on 2 bln ATM 10yr note Calls ...what are your hedging options?
What would your ideal anwer to these 3 questions be?
2 b 10yr notes - about 2200 10yr futures (2200 because the CTD is really the 7yr note...and this particular contract because that's where liquidity is focused
2 b 30yr zeros - sell 2 b 30yr coupon bonds (this offsets the P's, but now you have to hedge the coupon strips), then buy about 1,000 each classic and ultra bond futures, 400mm 10yr notes, 500mm 5yr notes (those quantities may be off a bit...but something close to that). The idea is to hedge the 30yrs of coupon strips.
2 b 10yr ATM calls - sell 1b 10yr notes (assuming delta is about 0.5), and then delta hedge as the market moves around
Learn what it means to build a curve. (I.e. spot curve discounting, forward curve implies what)
Learn how cash actually works in a bank. (What is the cost of cash, how does funding effect your positions).
Together you will get a sense of what your assets are worth and how much you will pay to have them.
The rest is just market structure.
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