Trading Jobs Fixed Income Trading 2

Question 1

What is a 'callable bond'?

Accepted Answer

A bond the issuer can redeem before maturity

Answer

A callable bond allows the issuer to repay the principal before the scheduled maturity date, usually when interest rates fall and they can refinance at lower rates.

Question 2

Which rating from Moody's indicates the lowest investment-grade bond quality?

Accepted Answer

Baa3

Answer

Baa3 is Moody's lowest investment-grade rating; anything below Baa3 (such as Ba1) is considered speculative-grade or 'junk.'

Question 3

What is the primary market for US Treasury bonds?

Accepted Answer

Treasury auctions

Answer

US Treasury securities are initially sold through Treasury auctions where primary dealers and the public submit competitive and non-competitive bids.

Question 4

What is 'convexity' in bond analysis?

Accepted Answer

A measure of the curvature in the price-yield relationship

Answer

Convexity measures the curvature or non-linearity in the relationship between bond prices and yields, improving duration's accuracy as a risk measure for large rate moves.

Question 5

What is the 'benchmark' most commonly used for pricing corporate bonds in the US?

Accepted Answer

US Treasury yields

Answer

Corporate bonds are typically priced as a spread over comparable-maturity US Treasury yields, which serve as the risk-free benchmark.

Trading Jobs Practice Test

Trading Jobs Practice Test

Trading Jobs Fixed Income Trading 2