Fixed Income
~120s

Fixed Income Interview Drills & Trade Cases

1 / 3
Try it free • Sign up to save progress
Investment CaseQuestion 1 of 4

Read the scenario below and answer the questions

Company & Bond

  • •Instrument: 5-year Euro IG corporate bond
  • •Price: 99.0 (per 100 par)
  • •Coupon: 4.0% annual (assume accrues linearly)
  • •Modified duration: 4.7
  • •Spread duration: 4.7 (assume equal to rate duration for simplicity)
  • •Current credit spread: 160 bps (over swaps)

Trade Thesis (3-month horizon)

  • •Rates view: government swap rates fall by 25 bps
  • •Credit view: spreads tighten by 15 bps
  • •You want to stay approximately duration-hedged using a government bond future

Hedge Instrument

  • •Government bond future DV01: 70 per contract (per 1 bp)

Stress Scenario (for discussion)

  • •Rates rise by 50 bps
  • •Spreads widen by 30 bps
Numeric AnswermediumFixed Income Trading

Using the mini-case numbers: estimate the expected 3-month total return (in %) from carry + rate move (-25 bps) + spread move (-15 bps). Use duration and spread duration of 4.7.

Enter as percent (e.g., 2.9 for 2.9%)

Submit your answer to continue