# Fixed Income Desk Cheat Sheet Fixed Income Interview Prep, fixedincomeinterview.com. Free to keep and share. How to use it: pick your desk, answer its five questions aloud, then check the line under each one. Conventions on this sheet: the line under each question is the hinge of the answer, not the whole answer; each full guide works the arithmetic. Figures carry their dates and market levels move daily, so recheck them before an interview. Exits are the routes commonly described for each desk; no bank publishes where its traders go. ## 1. Rates - Trades: Treasury bills, notes, bonds and TIPS, plus interest rate swaps and swaptions, priced off SOFR since LIBOR stopped setting new US dollar contracts on June 30, 2023. - Clients: real money managers buying duration, hedge funds seeking leverage (often via the cash-futures basis trade), corporates and banks hedging with swaps, official institutions. - Earns: bid-offer inside the Volcker Rule's market-making exemption, plus carry and financing. - Number to know: minus 108 basis points, the 2s10s spread on July 3, 2023, the deepest point of the longest inversion since the 1970s; it turned positive again on September 4, 2024. Five questions: 1. How do you size a DV01-neutral 2s10s steepener? Hedge ratio = 10-year DV01 / 2-year DV01, roughly four to one at typical yields, so a parallel move nets out and only the slope pays. 2. What does a 10-year position earn from carry and roll-down? Carry is yield minus repo financing cost; roll-down is the yield pickup from aging down an upward-sloping curve, times modified duration. 3. Why can a swap spread be negative? Post-crisis leverage rules make dealers hold capital against Treasuries on balance sheet while an offsetting swap sits off it, so they price that cost into the swap rate. 4. What did the last Fed decision do to yields? No script: read the Treasury curve that morning, say whether it is inverted and by how much, and tie the move to the decision. 5. What replaced LIBOR? SOFR, built from overnight Treasury repo trades rather than bank estimates; USD LIBOR panels stopped on June 30, 2023, so never call SOFR a coming change. Where it leads (commonly described): many stay in trading; outside, a macro-focused hedge fund, often a multi-manager pod, on the analyst to portfolio manager track; asset managers' portfolio and execution roles; a few into research or economic strategy. Full guide: https://fixedincomeinterview.com/rates-trading ## 2. Repo and money markets - Trades: repurchase agreements, cash loans secured on Treasuries, agency debt or mortgage-backed securities (MBS), as general collateral or specials, overnight or term. - Clients: money market funds lending cash, hedge funds borrowing it, other dealers, real money. - Earns: the spread between cheap and dear cash, which widens at quarter end and year end, plus specialness; balance sheet is the scarce resource. - Number to know: 56 percent of non-centrally cleared bilateral Treasury repo carried a zero haircut, and 10 percent a negative one, in the first five months of 2025. Five questions: 1. What is a repo, economically? A sale with an agreed repurchase that works as a collateralized loan; the price gap is the interest, quoted as the repo rate. 2. Lend $50 million overnight at a 2% haircut: how much collateral, and how much interest? Collateral = cash / (1 - haircut); interest = cash x rate x days / 360. 3. Why does a security trading special repo below general collateral? Demand to borrow that one security, often to cover shorts, outruns supply, so cash lenders accept a lower rate: the bond is scarce, not the cash. 4. Is a repo haircut always positive? No: it protects whichever side carries liquidation risk, and zero and negative haircuts are now common in bilateral Treasury repo. 5. How does the cash-futures basis trade work? Buy the Treasury, finance it in term repo and sell the future to earn the futures-implied repo rate over the financing rate; the leverage is why regulators watch it. Where it leads (commonly described): the short end of a rates desk; relative-value hedge funds, which lever up through repo; now and then a central bank or debt office dealing desk, a door that opens role by role. Full guide: https://fixedincomeinterview.com/repo-trading ## 3. Credit - Trades: US investment grade corporate bonds, singly or in portfolio trades, hedged with single-name and index credit default swaps (CDS); the number traded is the spread. - Clients: asset managers, insurers and pension funds, plus hedge funds trading relative value. - Earns: bid-offer and inventory inside the market-making exemption; screens carried 48 percent of investment grade volume across 2024 but only about 26 percent of dealers' trading revenue there. - Number to know: 80 basis points, the broad US investment grade index's option-adjusted spread on 10 September 2026, about an eighth of its December 2008 peak of 656. Five questions: 1. Quote a corporate bond credit spread two ways. Why don't they agree? A G-spread subtracts one Treasury yield; the option-adjusted spread prices every cash flow off the whole curve, so the benchmark maturity drives the gap. 2. What is the CS01 (value of a basis point of spread) on a $10 million position? Spread duration (modified duration, for a plain bond) x market value x 0.0001, checked by repricing one basis point wider and tighter. 3. The bond versus CDS basis is negative. What is the trade? The bond pays more for the risk than protection costs, so buy the bond and buy protection; repo, haircut and balance sheet decide how much you keep. 4. How does the desk earn inside the Volcker Rule? Market making lets it hold inventory within customers' reasonably expected near-term demands; risk it keeps must serve clients, not bet for the bank. 5. Where should investment grade spreads trade? No fixed answer: read the index and its single-A and BBB slices that morning against the December 2008 peak. Where it leads (commonly described): credit-focused hedge funds, most readily in trade execution or relative value, and asset managers' credit research and portfolio teams, usually after three to five years of track record. Full guide: https://fixedincomeinterview.com/credit-trading ## 4. High yield - Trades: corporate bonds rated BB+ or Ba1 and below, mostly callable, including fallen angels and rising stars. - Clients: hedge funds, credit asset managers, high yield mutual funds and ETFs, and insurers, concentrated in BB. - Earns: bid-offer plus warehoused risk; less electronic than investment grade, so more balance sheet per trade and more single-name credit work. - Number to know: 270 basis points, the broad US high yield index's option-adjusted spread over Treasuries on 10 September 2026. Five questions: 1. A callable bond trades above its call price. Which yield do you quote? Yield to worst, the lower of yield to call and yield to maturity; above the call price, that is usually yield to call. 2. What is spread to worst? Yield to worst minus the Treasury maturing on the worst-case date: the call date, not final maturity. 3. Where does investment grade end? One notch: Baa3 or BBB- is the lowest investment grade rating, Ba1 or BB+ the highest high yield one. 4. How do bond covenants differ from leveraged loan covenants? Bond incurrence covenants bite only when the borrower tries an action such as new debt; loan maintenance covenants were tested quarterly, and loans have since converged toward bonds. 5. Pitch me a credit. Business, capital structure, leverage, coverage, maturity wall, where it trades versus where it should, a catalyst, and the downside and recovery case. Where it leads (commonly described): credit-focused hedge funds that invest in high yield or distressed debt, and asset managers' high yield teams, testing leverage, coverage and covenants. Full guide: https://fixedincomeinterview.com/high-yield-trading ## 5. Distressed debt - Trades: bonds and loans of companies in or near default, bankruptcy trade claims and post-reorganization equity. - Clients: distressed and credit funds buy, some loan-to-own; mutual funds, insurers and collateralized loan obligations (CLOs) sell, as do vendors holding trade claims. - Earns: wide bid-offer and financing on inventory under the market-making exemption, plus claims trading. - Number to know: 64 percent, the share of credit events Moody's Asset Management Research tracked in the first half of 2025 that were distressed restructurings. Five questions: 1. Run a recovery waterfall. Secured claims from collateral first, pari passu unsecured claims pro rata, and nothing to a junior class until the class above is paid in full: absolute priority. 2. Which is the fulcrum security? The most senior class the enterprise value does not cover in full, likeliest to become the new equity. 3. Why does the desk bid below the waterfall's recovery value? Recovery is a value at emergence; the price discounts the time to confirmation and the risk that the valuation moves. 4. Long one tranche, short a more junior one: what does negative carry do? Carry is what a position earns just for being held; here it is negative, so the hedge loses money every day it waits to be right. 5. Have you followed a recent liability management exercise? Have one live case: a company uses loopholes in its credit documents to move some creditors ahead of others without filing, an uptier exchange being one common structure. Where it leads (commonly described): distressed and special-situations funds and direct lenders, or across to high yield or investment grade trading, far easier than the reverse; distressed funds will compare you with restructuring and leveraged finance bankers. Full guide: https://fixedincomeinterview.com/distressed-debt-trading ## 6. CLOs and structured credit - Trades: CLO tranches from AAA down to unrated equity, backed by pools of usually 200-plus senior secured, floating-rate leveraged loans. - Clients: insurers, banks and money managers up top; hedge funds, specialists and other CLO managers lower down. - Earns: underwriting and placement fees, bid-offer on new-issue and secondary tranches, and carry on inventory funded in repo. - Number to know: 61 percent, the share of new-issue leveraged loans that CLOs bought in 2024, making them the loan market's largest buyer. Five questions: 1. Why is a AAA CLO tranche so loss-remote? Subordination: five layers of junior debt and equity absorb losses first, so more than half of a typical pool would have to default before AAA loses a dollar. 2. An overcollateralization (OC) test fails. What happens? Cash meant for equity and junior tranches pays down the senior-most tranche until the ratio clears its trigger; paydown = debt balance - (collateral par / trigger). 3. What separates an OC test from an interest coverage (IC) test? OC compares loan par with a tranche's balance plus everything senior; IC compares interest collected with interest owed on the same tranches. 4. CLO versus CDO: what happened to each in 2008? CLOs hold managed senior secured loans, pre-crisis CDOs more often subprime mortgage bonds; a 2018 appeals court found no more than six CLOs defaulted, against 435 asset-backed CDOs. 5. Do CLO managers have to retain risk? Open-market managers have not since a 2018 D.C. Circuit ruling, as they never hold the loans; middle-market, balance-sheet managers still do. Where it leads (commonly described): CLO managers and other structured-credit buyers, as a CLO analyst; leveraged loan credit analysis is the core prerequisite, and operations a slower way in. Full guide: https://fixedincomeinterview.com/clo-trading ## 7. Securitized products - Trades: agency and non-agency residential MBS, commercial MBS and asset-backed securities, around the to-be-announced (TBA) forward market. - Clients: real money in senior tranches, hedge funds lower down, mortgage REITs, and originators selling TBAs forward before their pools exist. - Earns: bid-offer on TBA and pass-throughs, carry on pools funded in repo, the dollar roll, and structuring fees. - Number to know: more than 90 percent, TBA's share of agency MBS trading volume in 2021, when daily volume ran at roughly 281 billion dollars. Five questions: 1. What are contraction risk and extension risk? Contraction is faster repayment as falling rates spur refinancing, extension slower repayment as rates rise; both come from the borrower's prepayment option. 2. Why does a mortgage bond have negative convexity? Prepayments speed up when rates fall, capping the gain, and slow when rates rise, stretching a below-market coupon and deepening the loss. 3. What does option-adjusted spread capture that a yield spread cannot? It values the prepayment option across many rate paths and reports the spread left after the option's cost. 4. Does a CMO remove prepayment risk? No: its tranches redistribute the risk, so a senior class carries far less of it than the pool. 5. Why do only generic agency pass-throughs trade TBA? A TBA fixes issuer, coupon, maturity, price, par amount and settlement date and names pools 48 hours before settlement, so pools must be interchangeable; CMOs and non-agency bonds are not. Where it leads (commonly described): asset managers and credit hedge funds that buy these products, mortgage REITs, and occasionally structuring or capital markets; they test waterfall modeling and prepayment pricing. Full guide: https://fixedincomeinterview.com/securitized-products ## 8. Emerging markets credit - Trades: hard currency (US dollar) sovereign, quasi-sovereign and corporate bonds, and local currency government bonds. - Clients: real money managers, insurers and pensions; hedge funds and distressed specialists; local institutions, which hold most local currency government debt. - Earns: bid-offer, typically wider on thinner liquidity, plus new-issue underwriting and positioning around restructurings. - Number to know: $8.9 trillion, the total external debt of low and middle income countries at the end of 2024, $2.2 trillion of it held by bondholders. Five questions: 1. Sovereign, quasi-sovereign or corporate: what is the difference? A quasi-sovereign is wholly owned or guaranteed by the national government, so it trades near sovereign risk; a corporate still carries its country's risk. 2. Why are hard currency and local currency debt different businesses? Dollar bonds leave currency risk with the issuer and settle like any global bond; local bonds hand it to the foreign investor and can require local registration. 3. What does a dollar investor earn on a local bond if the currency moves? Compound, don't add: (1 + yield) x (1 + currency move) - 1; the shortcut misses by yield x move. 4. How does a sovereign restructuring run now? IMF program, joint IMF and World Bank debt sustainability analysis, then official creditors and bondholders in parallel under comparability of treatment: a broadly similar give-up for both. 5. Give me a view on one country. No script: pick one country or credit, read that morning's headlines and reason through it live. Where it leads (commonly described): emerging markets-dedicated funds and asset managers' emerging markets debt teams; the least documented exit on the floor, so argue from the skill: sovereign credit judgment plus currency and policy risk. Full guide: https://fixedincomeinterview.com/emerging-markets-credit --- More free prep: - Bond math formula sheet: https://fixedincomeinterview.com/bond-math-formula-sheet.md - Bond calculator: https://fixedincomeinterview.com/tools/bond-calculator - Interview questions, desk by desk: https://fixedincomeinterview.com/fixed-income-interview-questions Desk summaries set out for interview preparation, not trading or investment advice.