Debt Capital Markets interview preparation

Questions

100

Traced to a firm

45

Firms

26

Updated

September 2026

Asked at

All firmsTSTruist Securities5PIMCO4TD Securities4Apollo Global Management3Nomura3Scotiabank3Bain Capital2Houlihan Lokey2Mizuho2Neuberger Berman2Oaktree Capital Management2RCRBC Capital Markets2Carlyle Group1Deutsche Bank1Golub Capital1HPS Investment Partners1Invesco1KKR1Lazard1Moelis & Company1Moody's1Northern Trust1NUNuveen1Rothschild & Co1S&P Global1Wells Fargo Securities1

Topic

All topicsBond mechanics11Duration and convexity6Yield curve and rates5Credit spreads5Credit analysis and ratings13Credit modelling9Primary issuance9Syndication and loans10Structured credit7Covenants and documentation5Liability management5Indian debt markets7Fit8

Level

AnyCoreIntermediateHard

Type

AnyTechnicalBrainteaserMarket viewCaseFit

1. 004What is the difference between the clean price and the dirty price, and how does accrued interest work?Bond mechanicsIntermediatetechnicalFixed income asset management

   Say this

   The clean price is what gets quoted; the dirty price is what actually settles. The difference is accrued interest, the coupon the seller has earned since the last payment date but has not yet been paid.

   Then walk it

   1. Coupons pay to whoever holds the bond on the record date. If you sell halfway through a period, the buyer collects the whole coupon, so they compensate you for your half at settlement.
   2. Accrued equals the coupon times the day count fraction. A 6 percent semi-annual bond, 90 days into a 180-day period on a 30/360 basis, has accrued of 6 divided by 2 times 90 over 180, so 1.50 points.
   3. So a bond quoted at 98.00 settles at 99.50. Same bond, two numbers, and confusing them is a real settlement error, not a theoretical one.
   4. Clean prices are quoted precisely because they strip out the sawtooth. Dirty price rises steadily through the period then drops by the coupon on payment date; that pattern would make price charts useless.
   5. Yield is always calculated off the dirty price, because that is the actual cash outflow.
   6. One exception worth knowing: a defaulted or deeply distressed bond trades flat, meaning without accrued, because the coupon is not expected to be paid at all.

   Where candidates lose it

   Getting the definitions right but the direction wrong — saying the buyer receives accrued. The buyer pays it. And if you cannot do the day count fraction out loud, the answer sounds learned rather than used.

   Expect next

   • Work out accrued on a 4.5 percent semi-annual bond 45 days into the period.
   • What does it mean for a bond to trade flat?
   • Which price do you use to calculate yield?
2. 005A bond has a 6 percent coupon, 5 years to maturity, and trades at 95. Roughly what is the yield? Do it in your head.Bond mechanicsIntermediatetechnicalSyndicate desks

   Say this

   About 7.2 percent. Coupon income is 6 on 95, so 6.3 percent, plus 5 points of pull to par spread over 5 years, which is about 1 point a year or another 1.05 percent on a 95 price. Add them and you get roughly 7.3, and the true answer is 7.2.

   Then walk it

   1. The approximation is the coupon plus the annualised capital gain, all over the average of price and par. That is the standard back-of-envelope yield.
   2. Formally: 6 plus 5 over 5, so 7, divided by the average of 95 and 100, which is 97.5. That gives 7.18 percent.
   3. The reason the shortcut slightly overstates is discounting: the pull to par arrives at the end, so its present value is less than a point a year.
   4. Sanity check the direction first. It trades below par, so the yield must be above the 6 percent coupon. Getting the direction wrong is fatal; being 10 basis points out is not.
   5. The desk habit worth showing: quote it as roughly 7.2 and say you would price it exactly on the calculator. Interviewers want the instinct plus the discipline, not false precision.

   Where candidates lose it

   Reaching for a calculator, or freezing. This is a mental arithmetic test dressed as a bond question. State the direction first, then the approximation, then say you would confirm it precisely. Never quote a number to three decimals from a mental estimate.

   Expect next

   • Now do it for a bond trading at 105.
   • What if it had 20 years to maturity instead of 5?
   • What is the duration of that bond, roughly?
3. 008Why do day count conventions matter, and what is the difference between 30/360 and actual/actual?Bond mechanicsIntermediatetechnicalSyndicate desks

   Say this

   They decide exactly how much interest has accrued on any given day, which changes the cash that settles. 30/360 treats every month as 30 days and every year as 360; actual/actual counts real calendar days against the real year.

   Then walk it

   1. US corporates and munis conventionally use 30/360. US Treasuries and gilts use actual/actual. Money market instruments and floating rate loans use actual/360, and sterling markets use actual/365.
   2. The difference is small per trade and large in aggregate. On 100 million at 6 percent, a two-day discrepancy is about 33,000 dollars. Multiply across a book and it stops being academic.
   3. Actual/360 quietly pays more than it looks: you charge a year of interest over 360 days but collect for 365, so a stated 6 percent on actual/360 is an effective 6.08 percent. That is why loan markets use it.
   4. It also drives the comparison problem. Comparing a Treasury yield on actual/actual to a corporate on 30/360 without converting is a real error, which is why desks quote a bond-equivalent yield.
   5. The convention is not negotiable per trade; it is set in the documentation at issue, along with the business day convention that says what happens when a payment date falls on a weekend.
   6. Practical point: get this wrong on a settlement and it is an operational break, not a modelling nicety. It is one of the few places on a debt desk where precision is binary.

   Where candidates lose it

   Treating it as trivia. The follow-up is always 'so which is bigger, and by how much' — and the actual/360 effective-rate point is what shows you understand why anyone chose these conventions in the first place.

   Expect next

   • Why does actual/360 favour the lender?
   • Which convention does the Indian G-sec market use?
   • What is a bond-equivalent yield?
4. 010What is the difference between a bullet, an amortising bond and a sinking fund structure?Bond mechanicsIntermediatetechnicalStructured creditCorporate banking

   Say this

   It is about when principal comes back. A bullet repays all principal at maturity, an amortiser repays it in instalments over the life, and a sinking fund forces the issuer to retire a set amount of bonds each year, usually by open-market purchase or lottery redemption.

   Then walk it

   1. A bullet is the standard corporate bond. Clean, index-eligible, and it leaves the issuer with a refinancing cliff at maturity.
   2. Amortising structures dominate where the asset has a finite life: project finance, aircraft and equipment finance, most bank term loans, and asset-backed deals. The principal schedule tracks the cash the asset produces.
   3. Average life, not maturity, is the right measure for an amortiser. A 10-year loan amortising straight-line has an average life of about 5.5 years, so it prices off a 5-year benchmark, not a 10-year one.
   4. A sinking fund sits in between. The issuer must retire, say, 10 percent a year from year 5. It reduces the refinancing cliff, which lenders like, but it creates redemption uncertainty for a holder, who may be taken out early at par.
   5. Investor consequence: an amortiser returns capital steadily, so reinvestment risk is higher and duration is much lower for the same stated maturity.
   6. Why it matters in DCM: you match the repayment profile to the cash flow profile. A toll road with 25 years of contracted revenue amortises; a corporate issuing for general purposes bullets and expects to refinance.

   Where candidates lose it

   Treating average life and maturity as the same thing. On an amortiser they differ sharply, and pricing an amortising structure off the maturity benchmark rather than the average-life benchmark is a real mispricing, not a definitional slip.

   Expect next

   • Calculate the average life of a 10-year loan amortising 10 percent a year.
   • Which benchmark would you price it off?
   • Why do project finance deals always amortise?
5. 011Explain a callable bond and a puttable bond. Who holds the option, and what does it do to the yield?Bond mechanicsIntermediatetechnicalFixed income asset managementLeveraged finance

   Say this

   The issuer holds the call, the investor holds the put. A callable bond must yield more than an otherwise identical bullet, because the investor sold an option; a puttable bond yields less, because the investor bought one.

   Then walk it

   1. The issuer calls when it is in the money for them, which is when rates or spreads have fallen and they can refinance cheaper. So the investor loses exactly when holding would have paid best.
   2. That is negative convexity. As yields fall, the callable bond's price stops rising because it gets pinned near the call price. You get the downside of rates rising and a capped upside when they fall.
   3. Which is why you quote yield to worst, and why option-adjusted spread exists: OAS strips out the value of the embedded option so you can compare the callable against a bullet on credit alone.
   4. High yield bonds are almost always callable after a non-call period, typically non-call 2 or 3 on a 5-year, with a declining call premium. That is deliberate: sponsors want the right to refinance once the credit improves.
   5. A put works the other way. The investor can hand it back at par on a set date, usually protecting against a credit event or a change of control, so it is worth paying up for.
   6. The practical number: a callable high yield bond might yield 100 to 150 basis points more than a comparable bullet from the same issuer, and most of that gap is the option, not extra credit risk.

   Where candidates lose it

   Saying a callable bond yields more 'because it is riskier'. It is not more credit risky — it is the same issuer. The extra yield is the premium for an option you sold, and the concept the interviewer wants named is negative convexity.

   Expect next

   • What is negative convexity, and why does it matter here?
   • What is a make-whole call?
   • How does OAS help you compare the two?
6. 013What is DV01, and how would you actually use it on a desk?Duration and convexityIntermediatetechnicalSyndicate desksFixed income asset management

   Say this

   DV01 is the dollar change in the value of a position for a one basis point move in yield. It converts a percentage sensitivity into money, which is what you need to size a hedge.

   Then walk it

   1. The arithmetic: DV01 is roughly modified duration times market value times 0.0001. On 100 million of a bond with duration 7, that is about 70,000 dollars per basis point.
   2. Why money rather than percent: you cannot hedge a 7 percent sensitivity, you hedge 70,000 dollars a basis point. So you sell enough Treasury futures or pay enough on a swap to produce minus 70,000 a basis point.
   3. The hedge ratio is just the ratio of the two DV01s. If the cheapest-to-deliver 10-year note has a DV01 of 780 dollars per contract per basis point, you need about 90 contracts.
   4. It is also how risk limits are written. A syndicate or trading desk carrying a new issue overnight has a DV01 limit, not a duration limit, because the risk manager cares about dollars at stake.
   5. Related measures on the same logic: CS01 or spread DV01 for a one basis point move in credit spread, and that is the number a credit desk watches, because their rate risk is hedged out.
   6. The limitation: DV01 is linear and local. For large moves convexity matters, and for a callable bond DV01 itself changes as rates move, so you re-hedge rather than set and forget.

   Where candidates lose it

   Defining DV01 and stopping. The question is 'how would you use it', so give the hedge ratio. If you cannot say that the hedge is the ratio of DV01s, the answer reads as textbook.

   Expect next

   • Work out the DV01 on 250 million of a 5-duration bond.
   • What is CS01?
   • How would you hedge the rate risk on a new issue you are holding overnight?
7. 015Two bonds have the same maturity but different coupons. Which has the longer duration, and why?Duration and convexityIntermediatetechnicalFixed income asset management

   Say this

   The lower coupon bond. Duration is the present-value-weighted average time to the cash flows, and a low coupon puts proportionally more of the value in the final principal payment, which is the most distant cash flow.

   Then walk it

   1. Think of the weights. A 10-year 8 percent bond returns a lot of cash early, so the weighted average time is pulled forward. A 10-year 2 percent bond has almost all its value in the redemption at year 10.
   2. The limiting case proves it: a zero-coupon bond has no early cash flows at all, so its duration equals its maturity, which is the maximum possible for that tenor.
   3. Numbers: at a 5 percent yield, a 10-year 8 percent coupon bond has Macaulay duration around 7.1, a 4 percent coupon around 7.9, and the zero is 10.0.
   4. The same logic explains the other two drivers. Longer maturity extends the weighting, and a lower yield reduces the discounting of distant cash flows, so both lengthen duration.
   5. The practical consequence: low-coupon long-dated bonds issued in the zero-rate era carry enormous duration, which is why the 2022 rate move produced 40 percent-plus drawdowns on some sovereign long bonds.
   6. One qualification: this holds for bullets. A callable low-coupon bond may have shorter effective duration than the maths suggests, because the option truncates it.

   Where candidates lose it

   Guessing. It is a two-way question and half of candidates answer higher coupon because they think more cash flow means more sensitivity. Go back to the weighted-average-time definition and the zero-coupon limiting case, and the answer is forced.

   Expect next

   • So what is the maximum duration a 10-year bond can have?
   • What if one of them is callable?
   • Why did long sovereign bonds fall so hard in 2022?
8. 018What drives the shape of the yield curve?Yield curve and ratesIntermediatetechnicalFixed income asset management

   Say this

   Three things stacked on top of each other: where the market thinks policy rates are going, a term premium for holding duration, and supply and demand at specific maturities. The front end is almost entirely central bank expectations; the long end is mostly term premium and flows.

   Then walk it

   1. Expectations first. The 2-year is roughly the average expected policy rate over two years, so if the market prices cuts, the front end falls and the curve steepens from the front.
   2. Term premium second. Lending for 30 years carries inflation and policy uncertainty you cannot diversify, so investors demand extra yield. That premium expands when inflation is volatile and compresses when it is boring.
   3. Supply and demand third, and it is bigger than textbooks suggest. Pension and insurance demand anchors the long end; heavy government issuance at a particular tenor cheapens it. Quantitative easing suppressed term premium directly by taking duration out of the market.
   4. Put it together for the standard shapes. Upward sloping is the normal state: rates expected stable and a positive term premium. Inverted means the market expects cuts, which usually means it expects a slowdown. Humped usually means near-term hikes followed by cuts.
   5. A real example: the US curve inverted through 2023 with 2s10s at about minus 100 basis points at the extreme, then steepened back as cuts got priced. Same curve, two completely different messages about the cycle.
   6. The honest caveat: you cannot separate expectations from term premium observably. Models like ACM decompose them, and they disagree. So be careful about claiming the curve is 'predicting' anything specific.

   Where candidates lose it

   Giving only the expectations story. If the curve were pure expectations, the term premium would be zero and 30-year bonds would be as safe as bills. Naming term premium and supply-demand is what makes the answer sound like a rates desk rather than a textbook.

   Expect next

   • What is the term premium and can you observe it?
   • Why did QE flatten the curve?
   • What does an inverted curve tell you?
9. 019What does an inverted yield curve tell you, and what does it not tell you?Yield curve and ratesIntermediatetechnicalCredit researchFixed income asset management

   Say this

   It tells you the market expects policy rates to be lower in future than they are now, which usually means it expects growth to weaken. It does not tell you when, it does not tell you by how much, and it is not itself a cause of anything.

   Then walk it

   1. Mechanically, the long rate is an average of expected short rates plus a term premium. For the long rate to sit below the short rate, the market must be pricing meaningful cuts.
   2. The historical record is genuinely strong: 2s10s inversion has preceded every US recession since the 1960s. But the lag has ranged from about 6 to 24 months, which makes it useless as a timing tool.
   3. It has also produced false signals, and the 2022 to 2024 inversion is the live example — the deepest inversion in forty years without the recession arriving on schedule. Anyone who positioned purely on the signal lost money for two years.
   4. What it does to a DCM desk is concrete and immediate. Inversion means short funding costs more than long funding, so issuers term out debt and the long end of the new issue calendar gets busy. It also crushes bank net interest margins, because banks borrow short and lend long.
   5. For credit specifically, inversion plus tight spreads is the uncomfortable combination: the rates market is pricing a slowdown and the credit market is not. That divergence is worth flagging in an interview because it is a real analytical tension.
   6. The limitation to state: it is a market expectation, not a forecast with a track record of calibration. And the curve can un-invert either because growth recovers or because the front end collapses in a crisis — same shape change, opposite story.

   Where candidates lose it

   Saying 'an inverted curve predicts a recession' as a flat fact. The 2022 to 2024 episode is the obvious counter and an interviewer will produce it. Give the mechanism, then the record, then the false-signal caveat, then what it means for issuance.

   Expect next

   • So why did the 2022 inversion not produce a recession on schedule?
   • What does inversion do to bank margins?
   • Which part of the curve do you watch, 2s10s or 3m10y?
10. 021Describe Jerome Powell's tenure at the Fed.Yield curve and ratesIntermediateevery roundMizuhoInvestment Banking · New York · 2026

    Say this

    Structure it in phases rather than opinions: the normalisation attempt, the pandemic response, the inflation misjudgement and the fastest hiking cycle in forty years, then the disinflation and the path back down. Then say what each phase did to debt markets, because that is the part they actually want.

    Then walk it

    1. Phase one, 2018 to 2019: raising rates and shrinking the balance sheet, then reversing after the late-2018 risk selloff. That established the pattern of responsiveness to markets that critics call the Fed put.
    2. Phase two, 2020: the pandemic response, which for a debt desk is the important one. Rates to zero, unlimited Treasury and mortgage purchases, and for the first time facilities buying corporate bonds and ETFs. Investment grade spreads went from about 400 back inside 150 in months, largely on the announcement.
    3. Phase three, 2021: the framework shift to average inflation targeting and the 'transitory' call. Inflation ran to roughly 9 percent on headline CPI before the Fed moved decisively. That is the credibility cost of the tenure.
    4. Phase four, 2022 to 2023: 525 basis points of hikes in about 18 months, the fastest since Volcker. That repriced every fixed income asset, produced the worst bond year on record, and broke the banks that had duration mismatches, which is Silicon Valley Bank.
    5. Phase five: disinflation without the recession most people expected, then the careful walk back down. Whether that is skill or luck is genuinely contested, and saying so is better than picking a side.
    6. Bring it home to the desk: this tenure taught the market that the Fed will backstop credit markets in a liquidity crisis, and that duration risk is real. Both of those shape how issuers and investors behave today.

    Where candidates lose it

    Giving a political opinion, or a vague 'he handled COVID well and inflation badly'. Structure it in phases, attach one number to each, and finish with the implication for debt markets. Never editorialise about whether he should be replaced.

    Expect next

    • What did the corporate bond facilities actually do to spreads?
    • Was the soft landing skill or luck?
    • How did the 2022 hiking cycle affect bank balance sheets?

    Reported by candidates at Mizuho (Investment Banking, New York, 2026). Source: Wall Street Oasis.

Firm tags come from public, anonymous candidate reports on Wall Street Oasis: strong signal, not sworn testimony. Firms are named as the places a question was reported, not as partners of Fin Maverick. Answers are written for this page to show how to think out loud; they are not scripts to recite.