By the FinLingo Team | Capital markets practitioner, front office experience at a major European investment bank. FinLingo covers 342 lessons from bonds to exotic derivatives. About · Last updated:
Fixed income interviews drill three areas: bond math (duration, convexity, yield to maturity), the rates curve (OIS vs SOFR, IRS pricing, swap conventions), and credit (CDS mechanics, spreads, recovery). Expect 8 to 12 technical questions in a 45-minute round. The right answers are precise. Vague answers get you cut.
Three buckets cover roughly 90% of technical questions. Bond math is the warm-up. Duration, convexity, yield, accrued interest, day counts. Interviewers test that you can compute these on paper, not just define them. Rates curve is the meat. IRS pricing, OIS discounting, SOFR conventions, basis swaps, par swap rate. Credit closes the round. CDS mechanics, the bond-CDS basis, recovery rates, what drives spreads.
FX desks ask many of the same questions because the toolkit overlaps. Forwards, basis, repo, funding. The difference is volatility products: FX desks add vanna-volga and risk reversals; rates desks go deeper into curve construction and callable bonds.
First round is fast and broad. Final round goes deep on one or two areas, often probing whether you really understand what you said in the first round. Prepare to defend every answer with one more layer of detail.
Walk me through duration and convexity. Duration is the price sensitivity of a bond to a parallel shift in yield, expressed in years. Macaulay duration is the weighted average time to cash flows. Modified duration adjusts for compounding and is what you actually trade. A 10-year bond at par with a 4% yield has modified duration around 8.2 years. Convexity is the second derivative: it tells you the curvature, so duration alone underestimates the price gain when yields fall. Bond traders quote DV01 (dollar change per basis point), which is duration times price divided by 10,000.
Price a 5-year IRS off SOFR. The par swap rate is the fixed rate that makes the swap PV zero at inception. Build the SOFR curve from overnight to 30-year using OIS, futures, and swap quotes. Discount expected SOFR cash flows on the floating leg. Solve for the fixed coupon that equates the two legs in present value. The par rate equals the weighted average of expected forwards, weighted by discount factors. After the LIBOR retirement, this is the standard USD construction.
What changed when LIBOR ended. LIBOR was unsecured, term-based, and submission-driven. SOFR is secured (repo-based), overnight, and observed in actual transactions. Swap conventions changed: legacy LIBOR swaps were modified to reference Term SOFR plus a fixed spread. The OIS-LIBOR basis disappeared because the curves merged. Most desks now run a single SOFR curve for USD with a credit-adjusted overlay where needed.
How does a CDS pay out. A 5-year CDS on a single name pays a quarterly premium leg from buyer to seller. On a credit event (bankruptcy, failure to pay, restructuring), settlement is typically physical or auction-based: the seller pays par minus recovery, the buyer delivers the defaulted bond. The premium leg's PV equals the protection leg's PV at fair spread. Higher default probability or lower expected recovery widens the spread.
Repo vs unsecured funding. Repo is borrowing cash against collateral overnight or longer. The lender takes very little credit risk because they hold the bond. The repo rate trades close to the risk-free rate (SOFR is built from repo). Unsecured funding (Fed Funds, Euribor) carries bank credit risk and trades a few basis points higher in normal markets, much higher in stress. The spread between Fed Funds and SOFR is a measure of bank funding stress.
"Overnight repo on Treasuries is 4.30%. Fed Funds is 4.33%. A 10-year Treasury you hold trades at a 'special' of 5 basis points. Walk me through what is happening."
The answer in steps. Repo at 4.30% means you can borrow cash against general collateral Treasuries at that rate. Fed Funds at 4.33% means unsecured overnight lending costs slightly more, reflecting bank credit risk. A "special" rate below the general repo rate (here, 4.25%) means that specific 10-year is in unusually high demand for borrowing. Why? Probably because traders are short-selling that particular bond and need to borrow it to deliver. They pay a premium (a lower repo rate) to get it. If you hold the special bond, you can earn the spread between general repo and special repo by lending it out.
This question filters unprepared candidates because it requires combining three concepts: secured vs unsecured funding, the demand for specific securities, and the trader's incentive structure. Read about it once and you will get it. Skip it and you will not.
Confusing yield with coupon. A 4% coupon bond trading at 95 has a yield above 4%. Coupon is fixed contractually. Yield depends on the price.
Confusing duration units. Duration is in years but represents price sensitivity per unit yield change. A 10-year bond's modified duration is roughly 8.2 years, meaning a 1% yield rise drops price by approximately 8.2%.
Not knowing OIS discounting. Post-2008, swap pricing uses OIS curves for discounting and curve-specific projection curves for forwards. Candidates who think you discount swap legs at LIBOR or at the swap rate itself reveal they have not opened a curve module since 2010.
Hedging with the wrong DV01. A 10-year bond's DV01 is not the same as a 10-year swap's PV01, even though they look similar. The cash flows differ. Mistakes here cost real money in practice and they cost interviews in theory.
Build the curve yourself. Excel or Python, doesn't matter. Take SOFR overnight rate, futures contracts, and swap rates from public sources. Bootstrap forwards. Discount cash flows. Solve for par swap rates. The exercise teaches more than reading a textbook.
Practice on FinLingo. Level 1 covers fixed income foundations free: module 1.3 (Fixed Income), module 1.4 (Interest Rates), module 1.7 (Credit Markets). Levels 2 and 5 cover IRS pricing, callable products, and credit-linked structured products. The 350 desk-level interview questions include the full Rates desk subset (47 questions) and the FX desk subset (43 questions, with significant rates overlap).
Read the right books. Tuckman's Fixed Income Securities (4th edition) is the standard. Hull covers vanilla derivatives well but is light on rates curves. Fabozzi's handbooks are encyclopedic but heavy. Pick Tuckman for depth, Hull for breadth.
Bond pricing (present value of cash flows), Macaulay and modified duration, convexity, yield to maturity, day count conventions, and basic curve bootstrapping. You should be able to compute DV01 of a 10-year bond on paper and explain why a swap's PV01 may differ from a bond's DV01 of the same maturity.
Yes. LIBOR fully retired in mid-2023. SOFR is the USD reference rate. You should know that SOFR is overnight, secured, and backward-looking, that term SOFR exists for cleared products, and that swap conventions changed during the transition. Expect at least one SOFR question on any rates desk interview in 2026.
Important, even if the desk does not trade credit directly. You need to explain CDS mechanics, what drives credit spreads, how recovery rate enters CDS pricing, and the link between bond and CDS markets via the basis. Final-round candidates without credit fluency are rarely hired onto IG or HY trading desks.
Repo and funding questions. Many candidates know bond math but do not understand how a trader actually finances a long bond position overnight. Expect questions like "why is repo rate below Fed Funds" or "what is a special". These filter unprepared candidates fast.
Yes. FinLingo Level 1 covers fixed income foundations (modules 1.3, 1.4, 1.7) free. The 350 desk-level interview questions include Rates and FX desk subsets directly relevant to fixed income roles. Each question has a written answer plus follow-ups, designed for short mobile sessions between meetings or on the metro.
Learn this interactively on FinLingo. Level 1 is free.
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