Top 4 HSBC Sales and Trading (Global Markets) Interview Questions

By certain measures - like total asset size - HSBC is one of the largest banks in the world. But traditionally HSBC hasn't placed an overly large strategic emphasis on sales and trading (in the way that Goldman Sachs or J.P. Morgan have, for example).

This is largely a reflection of the fact that most of the asset- and client-base of HSBC is in Asia, where sales and trading isn't as large a business as it is in North America (or to a lesser extent Europe). Further, HSBC has always prized itself on its corporate banking functions and so has always placed a strategic emphasis on being viewed as being focused in on that.

However, this reality is quickly shifting. Over the past five years - with acceleration over the past few years - HSBC has begun to invest heavily in its sales and trading operations.

The reason for this is likely two fold. First, sales and trading revenues generally go up when markets become more volatile. So, sales and trading revenues are a great way to create stability (usually) in a bank's overall revenue (meaning S&T revenues can help augment periods of poorer corporate banking or investment banking revenue). Second, as the leading global bank in Asia, HSBC wants to ensure they maintain themselves as the leader in sales and trading within Asia (because there is a rapidly growing demand for sales and trading services within Asia). 

Note: Here's a great article from Bloomberg discussing how sales and trading revenue can act as a counter-cyclical buffer to other revenue streams of a bank (i.e., investment banking revenue).

HSBC Sales and Trading (Global Markets) Interview Questions

The kinds of questions you'll get in a sales and trading (markets) interview at HSBC are the classic style that I've talked about throughout other posts. However, most geographies of HSBC will hire summer analysts directly into either sales, trading, or quant roles (so you will need to pick, prior to applying, what area of sales and trading you want to be in).

1. What do we mean by credit spreads?
2. What are some things that affect corporate credit spreads?
3. What do you think has been a primary driver of inflation?
4. What's a weakness of yours?

What do we mean by credit spreads?

Those on high yield and distressed debt desks will always be talking about credit spreads -- both on an index-basis and an individual credit-basis.

As you likely already know, loans are priced on a floating basis (i.e., L + 400bps), whereas corporate bonds are priced on a fixed basis (i.e., 6% coupon).

While the term "credit spread" can be pretty loosely tossed around, most will mean it to refer to the spread (in basis points) of a corporate bond over the underlying government bond of a similar maturity.

So, for example, if we say a 10-year corporate bond trades with a spread of 400 basis points, this means the yield of the bond is currently 4.0% above the underlying 10-year treasury (if we're talking about a US corporate bond).

Given that the treasury is around 1.9% as of this writing, this would mean the yield of the corporate bond is 5.9% currently. 

What are some things that affect corporate credit spreads?

This is quite a broad question, but remember that credit spreads really correlate to the credit risk associated with corporate debt (compared to if you just bought government bonds instead).

Given that we assume - especially if we're dealing with US government bonds, or treasuries - that government debt has zero credit risk, then what enhances credit spreads are things that make it more likely that a company could default on their debt in the future. 

Often you'll hear traders refer to credit spreads on an index basis. For example, high yield credit spreads would refer to the average spread of all debt of a certain credit rating and a certain size. However, you'll often hear traders talk about the credit spreads of a specific company as well (i.e., the credit spread of one of Ford's bonds is 2.4% currently). 

So, things that will broadly affect credit spreads (i.e., cause high-yield credit spread indexes to go up) are things that are broadly negative to most companies; like enhanced geopolitical risk, a rise in unemployment, a rise in inflation that dampens consumer sentiment, etc.

However, you can certainly have credit spread indices go down (the spread narrow) while a certain company's credit spread goes up. For example, if the price of oil drops then that makes the likelihood of default for oil and gas companies go up. So oil and gas companies will have their credit spreads go up, while the broader credit spread index you're looking at could actually go down (because lower oil prices, all else being equal, is generally beneficial to most companies and the overall economy). 

Obviously, credit spreads can become quite a complicated topic. However, just knowing what's above will be more than enough to impress your interviewer. 

Note: I've created some other fixed income interview questions as well that you can check out.

What do you think has been a primary driver of inflation?

This is indicative of the kinds of broad questions you can get asked in an interview. Of course, there is no objectively right answer here -- economists and market makers alike have been reasonably offsides on their inflation predictions (although some operating in the normally sleepy area of inflation-linked products have done extraordinarily well thus far this year).  

The best answer is to start at first principles and then briefly build up to a more practical answer (keep in mind your answer shouldn't be more than a minute or two long). 

I'd say that the primary driver of inflation stems from having a sharp rise in aggregate demand over the past year. This was informed by consumers heavily cutting their spending during the onset of the pandemic, thus building up a large amount of savings, while simultaneously having the government provide unprecedented direct and in-direct cash transfers to consumers.

Then, when we got into late-2020 and early-2020, aggregate demand went through the roof as folks began to feel more comfortable spending and had much more money than they were used to. However, consumer purchasing patterns have also shifted sharply - at least over the past year - toward purchasing more goods as opposed to services (i.e., more durable goods than vacations).

Further, because of the general labor disruption due to the pandemic along with enhanced safety measures, the supply of goods being produced was curtailed. So you have a classic supply and demand issue -- the supply of goods have been at least partially curtailed, but demand for goods has gone up dramatically. As a result, prices for goods rose which consumers were willing to accept due to their enhanced level of savings (from their curtailed spending in most of 2020 and the government transfers they benefited from).

Of course, there's a long list of other factors you could talk about that contribute to inflationary pressures. But in your answer it's always a good idea to try to take things back to something somewhat analogous to first principles. 

If you want, you could extend this argument further by saying that in order to incentive people back to work or to stay in their current job, companies have had to provide greater wages. This has further enhanced aggregate demand (as people are now making more) which puts an added strain on the demand for goods (as consumers still haven't fully rotated back into buying as many services as they used to). This is how we get the kind of self-fulfilling inflation cycle that feeds on itself until it is ultimately stopped (historically this has been through rising rates sharply, which induces a recession). 

This phenomenon of rising wages also extends to the realm of sales and trading where we've seen base salary and bonuses go up significantly over the past year or so!

What's a weakness of yours?

Don't forget that part of any sales and trading interview will be broader behavioral questions and these shouldn't be overlooked. Even though it seems like there are probably no right or wrong answer to these kinds of questions, there absolutely are!

While there are a number of potential weaknesses you could point to, one that's always good to say is that you like to always feel very well prepared and in control. For example, you may point to the fact that you always try to study for exams well before they occur, etc.

However, you recognize that this desire for "control" is not going to always be possible in sales and trading. Things happen fast and markets (along with clients) are very unpredictable. So you know you're going to need to develop ways of coping with having to make decisions without having perfect information, or without being able to really sit back and think deeply about the exact right approach to a problem you're facing. 

The reason why this is a good weakness to point to (if you feel it's applicable to you) is because it places the weakness in the context of the job. Meaning, you know that what you're describing is normally considered a strength, but you have enough understanding of what it means to be in sales and trading to know that this could actually be a significant weakness.

Conclusion

As I mentioned at the outset, HSBC is not only an incredibly strong bank from a balance sheet perspective, but they're also rapidly growing out their sales and trading operations.

The questions above are some of the more broad and topical questions you could face at HSBC. I've also put together an even longer list of sales and trading interview questions, a deep dive into what sales and trading is all about, and, if you're looking for even more prep material, there are the sales and trading guides.

Finally, one thing to keep in mind is that HSBC does have a reputation of providing a lot of global movement for analysts and associates. So, if you're the type of person who'd love to be able to work a few years in London, Hong Kong, and maybe New York you'd have a strong opportunity to do so.