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. 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.

2. 022If CUSMA negotiations fall through this summer, what is the impact to the Bank of Canada?Yield curve and ratesHardtechnicalTD SecuritiesDebt Capital Markets · Toronto · 2026

   Say this

   It pulls the Bank in two directions at once, which is the whole point of the question. A trade breakdown is a large negative demand shock to Canadian growth, which argues for cuts, but tariffs and a weaker Canadian dollar push import prices up, which argues against. The Bank would likely cut and lean on the growth side, while flagging the inflation risk.

   Then walk it

   1. The growth channel is direct and large. Roughly three quarters of Canadian goods exports go to the United States, so tariffs or loss of preferential access hits manufacturing, autos and energy hard, and business investment freezes on the uncertainty alone.
   2. The inflation channel runs the other way. Tariffs raise input costs, and the loonie weakens on a worse terms-of-trade outlook, which raises the price of imported goods in Canadian dollars. That is a supply shock.
   3. A central bank facing a supply shock has to judge whether the price rise is a one-off level effect or feeds into expectations. If expectations stay anchored, you look through it and support demand. That is the Bank's stated approach.
   4. So the likely read: cuts, possibly faster than the market currently prices, with the communication emphasising that the inflation impulse is transitory and the output gap is opening.
   5. The complication is the exchange rate and the policy gap with the Fed. Cutting well below US rates weakens the loonie further, which imports more inflation. That constrains how far the Bank can go unilaterally.
   6. For a Toronto DCM desk the practical consequence: the Canadian curve steepens as the front end rallies on cuts, provincial and corporate spreads widen on the growth shock, and the new issue window for anything trade-exposed shuts.

   Where candidates lose it

   Answering with one direction only. The interviewer picked this because it is a growth-versus-inflation conflict, and the mark is for identifying the trade-off and then taking a view with a reason. Also, do not guess at treaty detail you do not know — reason from trade share and the two channels.

   Expect next

   • Which channel dominates, and why?
   • What does that do to the Canadian curve?
   • How does the policy gap with the Fed constrain them?

   Reported by candidates at TD Securities (Debt Capital Markets, Toronto, 2026). Source: Wall Street Oasis.

3. 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?
4. 024Walk me through the different spread measures — I-spread, asset swap spread, Z-spread and OAS. When would you use each?Credit spreadsHardtechnicalSyndicate desksCredit research

   Say this

   They are four increasingly careful ways of asking the same question: how much am I being paid over risk-free for this credit. I-spread is the crude one over an interpolated swap rate; Z-spread discounts every cash flow off the whole curve; OAS strips out the value of any embedded option.

   Then walk it

   1. I-spread, or interpolated spread: the bond's yield minus the swap rate at the same maturity. Fast and fine for quoting, but it compares a single yield number against a single point on the curve, so it ignores curve shape.
   2. Asset swap spread: the spread you earn if you buy the bond and swap the fixed coupons into floating. It is what a funded investor actually realises, and it is the number a syndicate desk uses to compare a new euro issue against outstanding paper.
   3. Z-spread, or zero-volatility spread: the constant spread you add to every point on the zero curve so the discounted cash flows equal the market price. This is the correct measure for a bullet, because it respects the shape of the curve rather than one point on it.
   4. OAS, option-adjusted spread: Z-spread minus the value of the embedded option, computed over simulated rate paths. For a callable high yield bond or an MBS, Z-spread overstates the credit compensation because part of it is the option premium you sold.
   5. So the rule: bullets, use Z-spread. Callables and mortgages, use OAS. Cross-currency or floating comparisons, use asset swap. Quick quotes, I-spread.
   6. One number to show the difference matters: on a callable high yield bond, Z-spread minus OAS can easily be 80 to 150 basis points. Ranking two bonds on Z-spread when one is callable will give you the wrong answer.

   Where candidates lose it

   Using Z-spread and OAS interchangeably. They are identical only when there is no embedded option. Saying 'OAS equals Z-spread for a bullet' unprompted is the single cleanest way to show you understand the family.

   Expect next

   • When are Z-spread and OAS the same?
   • How is OAS actually computed?
   • Which measure would you use to price a new euro issue?
5. 025Your bond's spread tightened 50 basis points, but Treasuries sold off 75. What happened to the price, and how did you do against the index?Credit spreadsIntermediatetechnicalCredit researchFixed income asset management

   Say this

   The all-in yield rose 25 basis points, so the price fell — roughly 1.75 percent on a 7-duration bond. But you outperformed, because the credit component went your way. Absolute return negative, relative return positive, and which one matters depends on the mandate.

   Then walk it

   1. Decompose the yield: yield equals the Treasury yield plus spread. Treasury up 75, spread down 50, so net yield up 25 basis points.
   2. Price effect: minus duration times 25 basis points. At duration 7 that is minus 1.75 percent, before convexity, which claws back a couple of basis points.
   3. Excess return is the part you get paid on as a credit manager. Spread tightened 50 basis points, so excess return over duration-matched Treasuries is roughly plus 3.5 percent at 7 spread duration. You beat the benchmark comfortably while losing money.
   4. This is exactly why credit mandates are measured on excess return and why most credit funds hedge or neutralise duration. The rate call is not what they are hired for.
   5. A real episode to reference: much of 2022 looked like this. Credit spreads were volatile but the dominant loss driver was the 400-plus basis point move in Treasury yields, so credit managers who picked well still delivered double-digit negative total returns.
   6. The thing to add unprompted: if your investor measures you on total return, a correct credit call does not save you. Explaining a negative absolute number to a client who does not distinguish the two is a real part of the job.

   Where candidates lose it

   Answering only one of the two questions. There are two: what happened to the price, and how did you do. Give both, with the arithmetic, and name excess return explicitly. Missing the sign on either component is the fast way to fail this.

   Expect next

   • How would you have hedged out the rate move?
   • What is excess return and how is it calculated?
   • Which matters more to your client?
6. 026Which is cheaper right now, US bonds or US equities?Credit spreadsHardtechnicalPIMCODebt Capital Markets · San Diego · 2026

   Say this

   Compare them on a like-for-like yield basis: the equity risk premium against the credit risk premium. Take the S&P earnings yield minus the 10-year Treasury yield, and set that against investment grade and high yield spreads. When the equity risk premium compresses toward the credit spread, bonds are the better paid risk.

   Then walk it

   1. The bond side is observable: the 10-year Treasury yield plus the investment grade spread gives you an all-in corporate yield, and it is contractual, senior and dated.
   2. The equity side needs a proxy. Forward earnings yield, which is one over the forward P/E, minus the Treasury yield gives you a rough equity risk premium. At a 20 times forward multiple that earnings yield is 5 percent.
   3. The comparison that has mattered since 2022: when investment grade yields sit near 5 to 6 percent and the equity risk premium is compressed toward 100 basis points or below, you are being paid almost the same to sit at the top of the capital structure as at the bottom. That is historically unusual and it is the honest case for bonds.
   4. Then the qualifications, which is where the marks are. Equity earnings grow and coupons do not, so in an inflationary world equities have the better long-run real claim. And the earnings yield is a forward estimate, so it is only as good as consensus.
   5. So the answer should be a framework plus a current read plus a horizon. Something like: on today's numbers bonds look better paid on a risk-adjusted basis over three years, equities over twenty.
   6. And say what would change your mind: an inflation re-acceleration hurts the bond case directly, because you lose the real value of a fixed coupon.

   Where candidates lose it

   Picking a side with no metric. The question is testing whether you can make two asset classes comparable, so the framework matters more than the conclusion. Check the current earnings yield and IG spread level the morning of the interview, and state your figures with the date.

   Expect next

   • What is the equity risk premium right now?
   • Does that comparison hold at a 20-year horizon?
   • What would change your view?

   Reported by candidates at PIMCO (Debt Capital Markets, San Diego, 2026). Source: Wall Street Oasis.

7. 027Can debt ever be more expensive than equity, and in what scenario?Credit spreadsHardsuperdayTD SecuritiesCapital Markets · New York · 2025

   Say this

   Yes, and it happens regularly in distress. When a borrower is close to default, rescue debt can price at 15 to 20 percent cash plus fees, warrants and PIK, while the equity stub is an out-of-the-money option that costs the sponsor nothing in cash. At that point issuing equity is cheaper than borrowing.

   Then walk it

   1. The normal ordering holds for two reasons: debt is senior so it takes less risk, and interest is tax-deductible so the after-tax cost is lower. Both can break.
   2. The tax shield disappears first. A company with no taxable income gets no deduction, so the after-tax cost of debt equals the pre-tax cost. Interest limitation rules, like the 30 percent of EBITDA cap in the US, do the same thing at high leverage.
   3. Then the risk ordering flips in effect. In distress, existing bonds trade at 20 or 30 percent yields and new money demands super-priority, a 15 percent coupon, 3 points of fees and warrants. All-in that can be 25 percent.
   4. Meanwhile the equity has convexity. A sponsor putting fresh equity into a levered business is buying a long-dated option on recovery, and the required return on that, in the sponsor's own hands, can be lower than the rescue lender's price.
   5. Concrete cases: 2020 pandemic rescue financings and several 2023 to 2024 liability management exercises priced new money at levels no equity investor would have demanded. Sponsors chose to write equity cheques instead.
   6. There is also a mundane version: a small private company with no ratings and no assets may simply not be able to borrow at any price, which is an infinite cost of debt. Availability, not just price, is part of the cost of capital.

   Where candidates lose it

   Answering flatly no because debt is senior and tax-deductible. That is the textbook line and the question exists to test whether you can break it. Name the tax shield disappearing and the distress case, and give an all-in rescue-financing number.

   Expect next

   • What happens to the tax shield if there is no taxable income?
   • Why would a sponsor write an equity cheque instead?
   • How would you price rescue financing?

   Reported by candidates at TD Securities (Capital Markets, New York, 2025). Source: Wall Street Oasis.

8. 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?
9. 029What do rating agencies actually assess?Credit analysis and ratingsCoretechnicalRating agenciesCredit research

   Say this

   Two halves: a business risk profile and a financial risk profile, combined into an anchor rating, then adjusted by modifiers. And the thing candidates miss — a rating is an opinion on relative probability of default over a cycle, not a forecast of next year, and for most corporate scales it says nothing about recovery.

   Then walk it

   1. Business risk: industry cyclicality and competitive dynamics, the company's position within it, scale, diversification by product, customer and geography, and the operating margin's stability through a downturn.
   2. Financial risk: leverage and coverage, cash flow to debt, liquidity, the maturity profile, and above all financial policy — stated leverage targets, dividend and buyback behaviour, and appetite for debt-funded M&A.
   3. The two combine into an anchor on a published matrix, then modifiers adjust it: diversification, capital structure, liquidity, management and governance, and comparable ratings analysis, which is the agency's explicit override.
   4. Parent and government support is the other big modifier. A subsidiary can be rated above its standalone profile on expected parent support, and many bank ratings carry uplift for expected sovereign support.
   5. What it is not: not a buy or sell recommendation, not a price, not a forecast of default in a specific year, and on the issuer scale not a view on how much you recover. Recovery ratings and issue-level notching are separate.
   6. Worth stating the known weakness: agencies are paid by issuers, they were badly wrong on structured finance in 2007, and they are slow through turning points — downgrades lag the market by months. A good credit analyst uses the report for disclosure and does their own work on the conclusion.

   Where candidates lose it

   Listing only the financial ratios. Business risk is usually the bigger driver of the rating, and financial policy is what decides borderline cases. Leaving out the agencies' conflict of interest and their lag also reads as naive — say it before they do.

   Expect next

   • Which matters more, business risk or financial risk?
   • What is comparable ratings analysis?
   • Why do agencies lag the market?
10. 030Where is the line between investment grade and high yield, and why does it matter so much?Credit analysis and ratingsCorephone / first roundLeveraged financeCredit research

    Say this

    BBB minus from S&P and Fitch, Baa3 from Moody's, is the lowest investment grade rung. One notch lower, BB plus or Ba1, is high yield. The line matters because it changes who is allowed to own the bond, not just what it costs.

    Then walk it

    1. The pricing step is real but not the main event. Crossing the line typically widens spread by 100 to 200 basis points, more in a stressed market.
    2. The ownership step is the main event. Many insurance, pension and mandate rules restrict or penalise sub-investment-grade holdings, and index membership changes: the bond leaves the IG index and enters the HY index, forcing mechanical selling by one set of funds and buying by a smaller set.
    3. Structure changes too. IG bonds are typically bullets with light covenants and no call protection beyond a make-whole. High yield comes with a non-call period, a declining call premium, and a full incurrence covenant package.
    4. Bank behaviour changes. Revolvers get smaller and secured, commercial paper access disappears, and derivative counterparties want collateral. The funding model shifts from unsecured and flexible to secured and negotiated.
    5. A fallen angel is an issuer downgraded from IG to HY, and a rising star is the reverse. Fallen angels move markets because the forced seller base is far larger than the natural buyer base — the 2020 downgrades of Ford and Kraft Heinz are the canonical examples, and they widened the whole HY index.
    6. Which is why so many issuers cluster at BBB. Keeping the last IG notch is often an explicit board-level financial policy, and it constrains buybacks and M&A in a way that is genuinely visible in behaviour.

    Where candidates lose it

    Naming the rating boundary and nothing else. The question is really about consequences: investor base, index membership, covenant package and bank access. The forced-seller mechanics of a fallen angel is the detail that shows you follow the market.

    Expect next

    • What is a fallen angel and why does it move the index?
    • Why do so many issuers sit at BBB?
    • How does the covenant package change below the line?

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.