Top 5 Global Markets Interview Questions

Traditionally, every large investment bank has had three primary front-office divisions: investment banking, equity research, and sales and trading.

However, for some reason quite a few banks have grown tired of the title "sales and trading" and have renamed their S&T divisions "global markets".

Even Goldman Sachs - who for decades bucked the trend and called their S&T division the securities division - has bowed to the peer pressure and rebranded securities into "global markets". 

To be clear, this is all a stylistic change, not a functional one. If you were to ask Goldman - where I spent some time working back when the S&T division was called the securities division - why they made the change, they would likely say that the change is meant to reflect that the division now seeks to serve clients through providing solutions beyond just the trading of securities (e.g., providing clients data and analysis of markets, not just making markets for them). 

Anyway, now Bank of America, Goldman Sachs, RBC, UBS and BNP Paribas (among others) all refer to their sales and trading divisions as being their global markets division.

The important thing to understand - from an interview perspective - is that the branding change has absolutely no impact on how interviews are conducted, or what roles will be open to you. 

So, let's cover some of the global markets interview questions you could get at any of the firms listed above. 

Global Markets Interview Questions

Below are links to each of the interview questions we'll be discussing. Feel free to click any of the links to be taken directly to the question.

1. The Fed is getting ready to raise rates, but yet the yield curve is flattening. What does this tell us?
2. Right now inflation is running above the Fed's target. Does the market believe that the Fed will be able to bring inflation under control?
3. What is a convertible bond?
4. What is the biggest story in markets right now?
5. What does backwardation refer to?

The Fed is getting ready to raise rates, but yet the yield curve is flattening. What does this tell us?

This is a great question that is both open-ended, but relies on you understanding what we mean by the yield curve flattening.

What the yield curve is telling us is that the market does not anticipate the Fed having the capacity to raise rates significantly, which is why the long-end of the yield curve isn't picking up much at all. 

However, the market does believe that the Fed will raise rates by around 100bps (so four rate increases) in 2022. 

In other words, market participants believe that once the Fed "lifts off" from the zero-lower bound and does three to four rate hikes, it won't be able to do any more and so long-term rates will not need to be pushed up any further.

Implicitly what the yield curve is telling us by being so flat is that market conditions won't warrant further rate increases, which means that market participants believe the economic growth and inflation will cool significantly as a result of (in the grand scheme of things) relatively modest rate increases.

You can see the accelerating flattening of the yield curve by looking at 2s10s, as shown below:

Note: As of late-2022, the 2s10s section of the yield curve is the most inverted since the 1980s (partially due to the fastest rate hiking cycle of the past forty years being undertaken, and partially due to fears over slowing growth into 2023 and 2024).

Right now inflation is running above the Fed's target. Does the market believe that the Fed will be able to bring inflation under control?

At present there is lots of debate surrounding inflation, but as you'd expect there is a way to get a sense for what the market is thinking about long-term inflation.

The way this is routinely done is by looking at the 5-year breakevens, which roughly tells you what the market anticipates inflation to be over the next five years.

As you can tell from the chart linked above - from the St. Louis Fed - for years the 5-year breakeven rate hovered around the 2% mark (which was the Fed's target inflation rate).

With the onset of the pandemic, the breakeven market has become much more volatile. Currently we're looking at breakeven rates just below 3%. However, keep in mind that the Fed now operates under a more flexible inflation targeting mandate where they are fine with temporarily overshooting the 2% target.

What is a convertible bond? 

Another classic type of global markets interview question is just being asked to define a slightly more esoteric type of product. 

A convertible bond is a traditional bond with an option embedded in it. This option gives the holder of the bond the right, but not the obligation, to convert the bond into a predetermined number of shares (the number of shares per bond is referred to as the conversion ratio). 

What a convertible bond really does for the holder is gives them some downside protection, while also giving them the ability to get enhanced upside. This downside protection comes from not needing to convert into shares; so if the equity price languishes, a bond holder can just keep getting their coupons from the bond. However, if the equity rises in price sufficiently the bond holder can convert their bond into shares, sell the shares, and make a greater profit than they could just holding the bond. 

What is the biggest story in markets right now?

Another classic global markets question is to be asked about a markets-related story that you're following right now, or what the biggest story in the markets is currently. 

Given that I don't know exactly when you're reading this, I would tell you what you should answer. However, what you should do is scan Bloomberg, the WSJ, and Financial Times each day for a week or so and see what the major recurring theme seems to be.

Perhaps it's volatility stemming from the collapse of property developers in China, perhaps it's the Fed speaking in a more hawkish manner about raises rates, perhaps it's the market being spooked by a higher inflation number than expected, etc.

The important thing to note is that you don't need to give a masterful dissertation on this biggest story. The purpose behind this question is truly just to see if you're following markets and can give a clear and articulate explanation of a major markets-related story in a few minutes. 

What does backwardation refer to?

Backwardation is a technical term that simply refers to when the spot price of an asset is higher than the futures price.

In the commodities markets, it's rare to see backwardation. Futures cost more than spot due to the need to pay for carrying cost. However, when there's a sudden surge of demand for a given type of asset or commodity, you can have backwardation where it costs more to purchase today than it does at any future date.

As you likely already know, supply chain disruptions, labor issues, and shipping issues have had an incredibly disruptive impact on commodities broadly speaking. Today we're seeing backwardation across the commodities space at levels not seen since prior to the great financial crisis. 

Conclusion

One of the primary purposes behind this site is to try to raise interest in global markets more generally. Because I simply do not think - when it comes to compensation, work-life balance, and general interest - there is any better career to get started in.

Hopefully these interview questions have been a bit helpful. If you're looking for an even longer list, you can check out these sales and trading interview questions. Further, if you're currently gearing up for interviews right now within S&T / Global Markets, be sure to check out all the sales and trading guides I put together as they may be of interest to you.

As always, remember that no one comes into a global markets / S&T interview as an expert. No interviewer is expecting unparalleled insights to be delivered by an interviewee -- rather you should view your job in an interview to just be able to show that you are following markets, know key terminology, and have a view on some of the major themes affecting markets at present.

Good luck!