FICC Sales: Overview and Interview Questions

The vast majority of those coming into sales and trading do so through summer analyst programs, off-cycle internships, etc. because it’s so difficult to evaluate how someone fits on the floor prior to them spending a few months on it.

So this is why you’ll rarely see analyst positions open up for trading roles. Instead, any “experienced hire” openings will typically be for analysts, associates, etc. that have already been working on a desk somewhere for at least a year or two.

However, it’s not too uncommon (at some banks) to see FICC sales roles come up that don’t require prior sales and trading experience (although, needless to say, it’s preferred if you have some!).

This is because any kind of cross-asset sales role requires one to have a reasonable understanding of markets and be able to communicate with institutional clients effectively. And since the former is easier to teach than the latter, a wider net is cast for potential new analysts or even associates.

The structure of most FICC sales interviews will be a mix of behavioral and market-based questions, and there will be few if any technical questions (i.e., no swap math). The behavioral questions will be along the lines of what you’d suspect (i.e., walk me through your resume, why sales, how would you deal with clients irritated over a trader giving a bad price, how would you deal with a client who suddenly seems to be dealing more with another bank, etc.).

The market-based questions are where candidates can really shine because both what you answer and how you answer are pretty good indicators of how you’ll do on the job (since most of your job is talking to clients, pitching ideas that the desk has come up with, etc.). Further, through your answer you’ll be able to demonstrate if you get what sales and trading is all about and if you have a reasonable understanding of the asset class(es) you’ll be dealing with.

No one expects you to be an expert and any cross-asset sales role is going to necessitate your knowledge of markets being a mile wide and an inch deep. But you want to put some meat on the bones of your answers, so let’s go through a few examples.

FICC Sales Interview Questions

As in almost all sales and trading interviews – whether you’re interviewing as a summer analyst, new grad, or as someone with a bit of experience – the market-based questions will usually be very open-ended and then it’ll be your job to get more specific in your answer.

So unlike most interviews, the ball is very much left in your court regarding the depth of your answer (ideally you want to shoot for two-to-three-minute answers delivered in a conversational style - try not to make your answers sound overly scripted!).

• When do you see the Fed reaching their terminal rate?
• What central bank do you think is most behind the curve in their rate hiking cycle?
• Is there a sector of credit that you think could perform well moving forward?

When do you see the Fed reaching their terminal rate?

The FOMC maintained its Fed Funds target range of 5.00-5.25% at the last meeting, after not-too-subtle comments from members (i.e., Vice Chair Jefferson) prior to the Fed’s blackout period regarding “skipping” this meeting.

To counteract financial conditions loosening in the wake of pausing the rate hike cycle, the Fed signaled through the revised Summary of Economic Projections that two more hikes will likely be warranted based on their growth and unemployment projections (this was revised up from the last meeting, where just one more 25bp hike was projected).

The market was taken by surprise by the upwardly revised projections but didn’t full buy the Fed’s tough talk. As a result, markets are currently fully pricing in just one more rate hike and are much less confident that another hike thereafter will occur.

However, there are some, like Barclays, who believe the Fed is likely to raise rates at the July meeting and either the September or November meeting (they think the Fed may skip the September meeting to wait for more data, just as they’ve done at this past meeting).

Barclays confidence in rates grinding higher comes from their belief in continued labor market tightness translating into sticky core inflation (something we’ve seen recently in Australia and Canada that forced both to begin hiking rates again after prematurely pausing). Because even though initial jobless claims have ticked up modestly, there aren’t remotely enough cracks in the labor market to bring wage inflation (~4.5-5.0%) back down to a level consistent with target (~3.0-3.5%).

Both Barclays and Goldman are calling for core inflation to remain “stickier for longer” as the sharp decline in goods inflation moderates and as services inflation stays elevated. Although, notably, they diverge in their recession probabilities: with Goldman recently revising down their forecast of a recession over the next twelve months to 25%, and Barclays calling for a recession taking hold in Q423 and Q124.

Personally, I err more on the side of Barclays and think we'll have sufficiently sticky core inflation to warrant two additional hikes, but that growth will likely slow to a crawl - perhaps tipping the economy into a technical recession - toward the end of the year. But I'd put the odds of a recession at a coin flip, as recent labor market data has been coming in roughly in line with what Goldman has been predicting.

Note: There are many arguments to be had over how exactly to measure financial conditions tightening or loosening. But, per Goldman’s Financial Conditions Index, the aftermath of the FOMC meeting last week caused a non-trivial loosening of financial conditions. Something that the Fed was trying to avoid through their more hawkish projections and Chair Powell’s slightly more hawkish press conference.

What central bank do you think is most behind the curve in their rate hiking cycle?

The obvious answer here is the Bank of England, and you’d be hard pressed to find many that would disagree. Here’s a snippet from a recent Goldman desk note prior to the Bank of England’s last meeting:

"Credibility is key–and whilst the market may not have much in the BoE’s forward looking inflation projections–it does at least assign some credibility when it comes to them delivering hikes in response to spot inflation realising well above their forecasts... Arguably however, with 130bps of hikes now priced in the OIS curve over the coming year, the hurdle rate for the BoE to keep delivering in line with the market expectations seems very steep. Any hesitance to hike, in the absence of a clear signal that inflation is meaningfully slowing down, could potentially reignite concerns around their credibility."

Prior to the BoE’s last meeting, the market expectation was for a 25bp hike given the BoE’s decidedly dovish framework. This market pricing was the case even after CPI came in well above expectations and at remarkably elevated levels given the relatively muted growth that the UK is currently experiencing.

Note: Core CPI increased from 6.8% YoY in April to 7.1% YoY in May (consensus was 6.8%). Headline CPI came in at 8.7% YoY, also above expectations of 8.4%.

But the BoE surprised markets with a 50bp hike to the Bank Rate as they are likely becoming increasingly concerned about inflation becoming entrenched and the possibility of a credibility crisis ensuing (thus why seven officials backed the 50bp hike, whereas earlier in the week most believed only one or two would advocate for a 50bp hike with the rest voting for a 25bp hike).

Through last year the market was consistently offsides on what the Bank of England would do: anticipating hikes when they didn’t materialize and, when hikes did occur, occasionally overestimating how large they’d be.

Today, Goldman is calling for another 50bp hike in August (vs. 25bp before) and a final hike of 25bp in September (thereby reaching a terminal rate of 5.75%). The market is slightly more aggressive, believing the BoE will reach a terminal rate of 6.00%.

The BoE has expressed surprise at just how persistent elevated inflation is given the economic background, citing wage growth from April “contrasting notably with the falling growth rates”.

But markets may be expecting slightly too much from the BoE moving forward, as they stated the 50bp step was needed “at this particular meeting” – not an overly confidence-inducing statement that 50bp hikes will continue to be the norm until they reach a materially higher terminal rate or inflation begins to moderate substantially.

Either way, relative to other developed market central banks, there’s no getting around that the BoE is still most behind the curve. And they’ve only grown increasingly so over the past week given where the terminal rate has re-priced.

Is there a sector of credit that you think could perform well moving forward? 

An obvious way to answer any question regarding what sector, asset class, etc. you think could perform well moving forward is to just think about where there’s been the most dislocation recently and if it’s plausible that there will be a reversion to the mean.

In credit the biggest sector dislocation this year has been in banks after the failure of regional banks in the United States and the Credit Suisse “merger” in Europe. Both events, and fears over contagion from them, drove bank spreads materially higher vs. the overall investment grade (IG) market.

While you can certainly make an argument that there should be some premium for the banking sector relative to the broader IG market given where rates are, the spread currently stands at around the 96^th percentile so has room to compress in more narrowly.

Domestically, the current spread is no doubt pricing in not only hangover risk from the regional bank failures earlier this year, but also the market’s consensus view that a recession will likely occur in the next twelve months (something that would cause significant asset quality deterioration for banks).

But if you’re in the soft landing camp, as some like Goldman are, then the level of spread being priced here is likely far too high and you’d expect the spread to tighten as the market comes around to the idea of a recession being unlikely and therefore asset quality not being poised to materially deteriorate.

Conclusion

In any sales role, but especially one that’s cross-asset, keep in mind that your interviewer is looking not only for your level of understanding of markets but also how you can verbally express your understanding.

The best way to practice for sales roles is to make a list of three of four market stories (i.e., where you see the Fed going, etc.) and practice your delivery of a compelling narrative. Included in that narrative should always be a number of facts like I’ve provided in the answers above (i.e., if you bring up wage inflation, say where it roughly is today!).

Many get a bit overwhelmed with the prospect of sales interviews in the context of sales and trading because they think they need to have talking points for every market theme. But usually you’ll be given a relatively open-ended question with no right or wrong answer and your interviewer will let you take your answer in whatever direction you see fit.

If you haven’t already, make sure to review the longer list of sales and trading interview questions for more behavioral questions. And also make sure to review my long overview of sales and trading if you’re a bit iffy on how exactly a trading floor is set up, how desks are structured, etc.