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. 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?
3. 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?
4. 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?
5. 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?
6. 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?
7. 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?
8. 023What does a credit spread actually compensate an investor for?Credit spreadsIntermediatetechnicalCredit researchFixed income asset management

   Say this

   Four things, and only the first is default. Expected credit loss, the risk that losses come out worse than expected, illiquidity, and a residual that is really just supply and demand for credit risk. Expected loss is usually the smallest component.

   Then walk it

   1. Expected loss is probability of default times loss given default. For a BBB name at roughly 0.2 percent annual default probability and 60 percent loss severity, that is about 12 basis points a year.
   2. But BBB spreads have historically averaged around 150 basis points. So the vast majority of the spread is not compensation for expected default at all.
   3. The rest is: a risk premium for the fact that defaults cluster in recessions exactly when your other assets are falling, so credit losses are systematic and undiversifiable; a liquidity premium, because corporate bonds trade by appointment and bid-offer widens when you most want to sell; and a plain supply-demand residual.
   4. The credit spread puzzle is the academic name for this gap, and it is worth naming. It is why a diversified investment grade portfolio has historically earned a real excess return over Treasuries despite realised losses being tiny.
   5. For high yield the balance shifts. A single-B name at 4 percent annual default probability and 60 percent severity carries about 240 basis points of expected loss against maybe 450 of spread, so default compensation is now a majority of the spread.
   6. The honest caveat: spreads also contain a technical component that has nothing to do with credit. Index inclusion, central bank purchases, and fund flows can move investment grade spreads 50 basis points with no change in fundamentals.

   Where candidates lose it

   Answering 'default risk' and stopping. The interesting fact is that expected default loss explains only a small fraction of investment grade spread, and being able to put numbers on that gap is what makes you sound like a credit analyst rather than a student.

   Expect next

   • So what is the credit spread puzzle?
   • How would you estimate loss given default?
   • Why do spreads widen before defaults rise?
9. 028Walk me through the ratings process for a debut issuer.Credit analysis and ratingsIntermediatetechnicalRating agenciesCorporate banking

   Say this

   Six to ten weeks, and it is a managed process rather than a submission. You prepare a rating presentation and a model, hold a management meeting with the analytical team, they take it to a committee, you get an indicative or final rating with an outlook, and the issuer has one appeal before it is published.

   Then walk it

   1. Step one is choosing agencies. Most benchmark issuers take two, because index eligibility and many investor mandates require two ratings. A third is bought when you expect it to be better or when you need a specific investor base.
   2. Then the rating presentation, which the DCM team drafts with the company: business description, market position, financial policy, a five-year model, and crucially a stated leverage target. The financial policy commitment is often what decides the notch.
   3. The management meeting is the substance. The agency's lead analyst and team question the CFO and treasurer for several hours. Rehearsing the CFO for this is real ratings advisory work, not window dressing.
   4. Committee follows, and the analyst is one vote. Then the agency issues an indicative rating confidentially, which lets the issuer decide whether to proceed or fix something first — refine the structure, add security, change the maturity profile.
   5. Appeal is one shot and needs new information, not a better argument. Then the rating publishes with an outlook and the issuer enters ongoing surveillance, with an annual review and rating triggers.
   6. The practical number: a notch on the boundary is worth real money. Crossing from BBB minus to BB plus can widen the coupon by 100 to 200 basis points and shrink your investor base sharply, which is why ratings advisory happens before the deal, not during it.

   Where candidates lose it

   Describing it as a passive assessment the company receives. It is a negotiation with an evidence standard, and the commercially important insight is the indicative rating step, which lets the issuer restructure before anything is published.

   Expect next

   • Why would an issuer take two ratings rather than one?
   • What is ratings advisory?
   • What happens if the indicative rating comes back a notch below target?
10. 033What specific line items on the financial statements would you look at when evaluating creditworthiness?Credit analysis and ratingsIntermediatetechnicalRCRBC Capital MarketsCorporate Banking · New York · 2026

    Say this

    I would go line by line with cash in mind. On the income statement: revenue trend, gross margin, EBIT and interest expense. On the cash flow statement: cash from operations, capex and the working capital swings. On the balance sheet: total debt by maturity, cash, and the off-balance-sheet items sitting in the notes.

    Then walk it

    1. Income statement: revenue growth and its stability, gross margin as the read on pricing power, EBIT, and interest expense. Interest expense divided by average debt gives you the effective rate, which is a fast check on whether the stated cost of debt is real.
    2. Cash flow statement is where I spend most time, because it is the hardest to dress up. Cash from operations versus EBITDA tells you the conversion rate. Working capital swings tell you whether growth consumes cash. Capex split between maintenance and growth tells you what is discretionary in a downturn.
    3. Balance sheet: debt by instrument and maturity, not just the total. Cash and undrawn revolver capacity, because liquidity kills companies before leverage does. Then receivables and inventory days against history, since a deterioration there is an early warning.
    4. The notes are where the real work is: operating and finance lease obligations, pension deficits, contingent liabilities, guarantees, receivables factoring and supply chain finance programmes, and the debt maturity table. Any of these can add a turn of effective leverage.
    5. Then the structural question the statements only half answer: which entity in the group actually owes the debt, and where do the assets and cash sit. Consolidated leverage of 3 times can hide a holdco that is structurally subordinated to everything.
    6. One quick number to illustrate: a retailer with 500 million of lease obligations and 300 million of drawn debt has effective leverage that is roughly double what the debt line suggests, and pre-IFRS 16 that was entirely invisible on the face of the balance sheet.

    Where candidates lose it

    Naming only the debt line and EBITDA. The answer that impresses a corporate banking interviewer goes to the notes — leases, pensions, factoring, guarantees — and then asks which legal entity owes the money. That is the difference between a ratio and a credit view.

    Expect next

    • How would you adjust EBITDA and debt for leases?
    • What would you check in the notes first?
    • How do you spot receivables factoring?

    Reported by candidates at RBC Capital Markets (Corporate 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.