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. 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?

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.