How ready are you for a fixed income interview?

Answer: The dealer borrows cash overnight against the bond and buys it back tomorrow

A repo is a collateralized loan dressed up as two trades: a sale today and a repurchase at a fixed price tomorrow. The dealer gets short-term cash and keeps the economic risk of the bond throughout, which is exactly what separates it from an outright sale. Treating it as a real sale is the natural mistake, and it makes the rest of the repo market hard to follow, because general collateral rates, specials and haircuts only make sense once the bond never actually leaves the dealer's book.

Answer: Everyone wants to borrow that specific bond, so its repo rate sits below the general rate

A bond goes on special when short sellers need that exact security to make delivery, so cash lenders will accept a lower return on their cash just to get hold of the bond itself. That is the reverse of the usual logic, where the party posting collateral pays for the privilege; here the party wanting the bond effectively pays by accepting less interest. Assuming scarcity always raises the rate is the tempting instinct, but it inverts depending on which side of the trade is actually scarce.

Answer: Markets expect growth to slow and the central bank to cut rates ahead

An inverted curve means investors accept less yield for tying up money longer, which does not make sense unless the market expects short-term rates to fall in the future. That expectation usually reflects a slowing economy and anticipated rate cuts, not a run of optimism about growth. It is tempting to read an unusual curve shape as a supply-and-demand technicality, but the curve is first a market forecast, not a plumbing problem.

Answer: By capturing the bid-offer spread on client orders passing through the desk

A flow desk exists to intermediate client orders, buying from one client and selling to another, or to the wider market, and keeping the difference between the two prices. That is a very different business from taking a directional view and holding a position on the hope that spreads move a certain way, which is what a risk-taking book does instead. The spread earned per trade is modest, so the business depends on volume, not on being right about where the market goes next.

Answer: Falling rates make homeowners refinance faster, cutting the bond's life exactly when price gains matter most

A mortgage borrower can refinance whenever it becomes cheaper to do so, and that option gets exercised exactly when rates fall, the moment a normal bond would otherwise be gaining the most value. Instead the pool prepays early and hands investors their cash back right when they would rather keep the higher-yielding loans running. Reversing which direction of rate move triggers the refinancing describes an ordinary bond, not a mortgage pool, which is what makes that version of the answer tempting and wrong.

Answer: High yield leans harder on fundamental credit work, because price reflects real default risk

High yield issuers carry meaningfully higher default risk, so pricing a bond correctly means doing real fundamental work on the company's cash flow and its covenants, not just watching where the benchmark curve moved. Investment grade names still get analyzed, but a much larger share of an investment grade bond's price is explained by the level of rates rather than by company-specific risk. Assuming the two desks trade on identical mechanics because both sit under the same credit umbrella is the trap; they reward a genuinely different skill.

Answer: Its fixed cash flows are now discounted at a higher rate, so their value today falls

A bond's price is the present value of its fixed coupon and principal payments, and discounting those same cash flows at a higher rate always produces a smaller number today. Nothing about the bond itself changes: the coupon, the face value and the maturity date all stay fixed; only the rate used to value those future payments moves. Reaching for a mechanical trigger, like an automatic reset or a write-down, skips past the actual reason, which is ordinary present-value arithmetic.

Answer: The weighted average time until the bond's cash flows are received

Macaulay duration weights each cash flow, the coupons along the way and the principal at maturity, by how far in the future it arrives, then averages those times. A bond paying a large coupon has its weighted average pulled earlier, while a zero-coupon bond's Macaulay duration equals its maturity exactly. It has nothing to do with total income, a call feature or who owns the bond; it is purely a statement about timing.

Answer: Modified duration converts that time measure into a price sensitivity to yield

Macaulay duration is measured in years; modified duration rescales that same number into an estimate of how much the bond's price moves for a small change in yield. The two are related by a simple factor involving the yield itself, which is why people conflate them, but only modified duration answers the question a trader actually asks, which is how much the price moves. Neither measure is specific to callable bonds or tied only to the bond's final maturity date.

Answer: The dollar change in the bond's price for a one basis point move in yield

DV01 translates a bond's sensitivity into a single dollar figure: exactly how much a position gains or loses if yield moves by one basis point. That makes risk directly comparable across bonds of different size and coupon, which is why traders quote risk in DV01 rather than in duration alone. It says nothing about total return, accrued interest or the bid-offer spread, all of which are real numbers that answer a different question.

Answer: Duration is only a straight-line fit; the actual price-yield relationship curves

Duration draws a straight line through the price-yield relationship, a good approximation for a small move, but it understates how much price actually rises when yields fall a lot and overstates how much it falls when yields rise a lot. The true relationship curves, and convexity is exactly that curvature. It has nothing to do with reinvestment assumptions or the bond's credit rating; it is a property of the price-yield math itself.

Answer: A screen, then technical and fit rounds, then a superday with several desks

Most sales and trading processes run through several distinct filters before an offer: an initial screen, then rounds testing technical knowledge and desk fit, ending in a superday where a candidate meets several desks in one day. Compressing that into a single interview or a single test underestimates how many people a bank wants to see in front of a candidate before committing to a hire. The superday is usually the deciding round, not the only one.

Answer: A clear view, the trade that expresses it, and what would prove the view wrong

A strong trade pitch states an actual view on the market, the specific trade that expresses that view, and honestly names what would prove the view wrong. That last part separates a real pitch from a confident restatement of the news, because it shows the candidate has thought about risk rather than just conviction. Sizing has nothing to do with what makes a pitch good, and a trade built on a real view always carries some chance of being wrong.

Answer: A base salary plus a bonus tied to the desk's own performance that year

Pay on a trading desk is built from a base salary, which is relatively modest and stable, plus a bonus meant to track how much value the trader's own desk created that year. That structure is deliberate: it ties the variable part of pay to performance rather than to a fixed formula based on volume or seniority alone. Sales seats are paid the same way, on a base plus a bonus, not on a separate system.

Answer: Each desk's bonus pool tracks the revenue that specific desk generated that year

Bonus pools are usually set desk by desk, sized against the revenue that specific desk actually generated, rather than pooled centrally and split evenly across every seat in the bank. That is why a rates desk having a strong year and a credit desk having a weak one in the same bank can produce very different bonuses at the same level. Location and tenure affect the number at the margin, but neither overrides the desk's own result.

Answer: A macro-focused fund, an asset manager, or a similar seat at another bank

Fixed income skills, reading a curve, pricing risk, sizing a position, transfer fairly directly to a macro-focused fund, an asset manager's fixed income team, or an equivalent seat at a different bank, which is why all three are common landing spots. Very few people leave the seat entirely for something unrelated, because the analytical skills built on a trading desk have a narrow but real set of buyers. Front-office experience is a qualification for a compliance role, not a disqualification from one, so that particular claim runs backward.

Answer: What news moves them: economic data and rate policy versus company and sector news

The mechanics of the seat, pricing, risk limits, client interaction, look similar across desks, but what a junior actually watches all day is different: a rates junior tracks economic releases and central bank commentary, while a credit junior tracks company earnings, ratings actions and sector news. Hours and client contact both vary by desk and by bank, but neither is a fixed rule the way the type of information that moves the desk is.

Answer: The bonus is tied directly to that year's revenue, not paid on a fixed schedule

The base salary is close to fixed, but the bonus is calculated against that year's actual revenue, so a strong year and a weak year can produce very different total pay for the same person in the same seat. That variability is the trade-off for a bonus that can also be large in a good year, unlike a role paid on a fixed schedule regardless of performance. Traders are salaried, not hourly, so a slow market shows up as a smaller bonus, not fewer paid hours.