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. 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?
2. 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?

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.