10 Fixed Income ‘Must- Knows’ For Interview

1.Bonds and Fixed Income mean the same thing.

2.Most bonds are ‘Straights’ having an fixed interest payment every year called a coupon and a repayment end date (in 2, 5, 10 , 20 years time etc..) called a Maturity Date.

3.Bonds that are not ‘Straights’ include Floating Rate Notes (FRNs) with a interest payment that changes periodically often linked to an Index e.g. the 6 Month USD LIBOR rate.

4.Derivative Bonds, often with complex formulas around interest and maturity payments, are also therefore not Straights.

5.The biggest and most influential bond market in the world is the US Treasury Market which partially influences other markets.

6.Bonds that were issued some time ago and trade between bank’s and their clients trade in the ‘Secondary Market’.

7.New bonds are issued and initially trade in the ‘New Issues’ market.

8.A Lead Manager bank will organise the New Issue and invite other Investment Banks into the Syndicate. All  banks will earn fees for taking on the risk.

9.Fixed Income/Bond Asset Classes:

Governments: e.g. US Treasuries, UK Gilts, German Bunds

Sovereigns: e.g. issued by Sweden, Italy, Brazil to international clients outside the borrowers own country.

Agency Bonds: e.g. issued by semi-government agencies often from the US e.g. Federal Home Loan Mortgage Corporation (Freddie Mac), the Federal National Mortgage Association (Fannie Mae pronounced May)

Supranationals: e.g. World bank, European Investment Bank

Corporates:  e.g. IBM, Toyota, Marks & Spencer.

MBS/ABS: Mortgage and Asset Backed Securities; defined as ‘Derivative Bonds’ or simply ‘Derivatives’  and were partly responsible for the financial market collapse in 2008 due to the very leveraged nature of these instruments. Since 2008 many clients and banks have withdrawn their involvement in this sector.

10.The investment return from a bond is often measured by yield; specifically its ‘Yield to Maturity’.

..and one more

Most bond traders are not geniuses and are overpaid!

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About Paul McCormick

Paul McCormick is the founder of Opening City Doors and is a Financial Market Specialist having worked for several leading Investment Banks and financial technology institutions additionally.He therefore provides a unique insight, and unusually broad perspective, into the opportunities available in London Financial Markets and related sectors and how to launch your career in the ‘City’.