Top 5 TD Global Markets Interview Questions

Over the past decade TD has grown their global markets (sales and trading) platform quite a bit. Not only within Canada but also in the US where they’ve followed a similar playbook to RBC in trying to gain a stronger foothold.

Needless to say, TD is exceptionally strong in Canada across all asset classes and have a well-developed summer analyst program that’ll provide you great exposure. So if you’re in Canada (where there are far fewer sales and trading seats available) you should definitely be throwing in an application to TD.

Since I’ve covered endless behavioral and technical questions in prior posts, this post will be similar to my post on BMO Global Markets from a few months ago where I’ll focus on major macro themes impacting markets (if you’re looking for classic behavioral and technical questions, be sure to look at my original list of sales and trading interview questions and the sales and trading primer).

These are posts that everyone seems to really enjoy, and the past few months have seen no shortage of large stories (briefly) roiling markets. And on the horizon is another potential Richter-scale event in the form of a highly unlikely, but still possible, technical default if the debt ceiling isn’t raised. So let’s get into it...

TD Global Markets Interview Questions

Below are some interview questions that (as usual) have answers that go into far more depth than you’d ever be expected to give in an actual interview. Throughout you’ll notice a number of screenshots from a recent GS report on the debt ceiling issue – I’ve uploaded this report in the members area if you want to read through it.

  1. What is the x-date and when will it be hit?
  2. If the debt ceiling is hit does that mean a technical default has occurred?
  3. What would happen to treasuries during a technical default?
  4. What would you expect the dollar to do if we get to the x-date, past the x-date, or even have a technical default?
  5. The VIX seems incredibly low right now, so does everyone just think that the debt ceiling issue will be resolved well before the x-date?

What is the x-date and when will it be hit?

Whenever there’s an event that intersects politics and finance, there’s countless bad takes that begin circulating that tend to leave the general public desperately confused about what’s really going on.

And that’s exactly what we’re seeing right now with the commentary surrounding the debt ceiling – currently at $31,381tr – and when it will be hit (this date that the debt ceiling will be hit has been coined the x-date).

The Treasury has said that by “early June” it’s unlikely to be able to make all payments it’s obliged to without an increase in the debt ceiling, so many commentators and politicians have adopted June 1 as the de facto x-date and when a deal must be done by.

But the reality is that no one knows – as of this writing – exactly when the debt ceiling will be hit since it’s contingent on Treasury inflows and outflows that are impossible to model with any real granularity this far out. Indeed, it will be hard to know, up until roughly the week before the ultimate x-date, what day the x-date will fall on.

For example, per Goldman’s analysis, on May 17 the Treasury had around $160bn of room under the ceiling and, through June 1, around $85bn of this room will be utilized thereby leaving around $75bn in room left. They’re then projecting that by June 8-9 the amount of room will drop to under $30bn.

Importantly, by June 8-9, based on the limited room left, they’re projecting 50/50 odds of actually hitting the debt limit given the limited amount of time that’ll be left to strike a deal and the fact that large outflows on any one day could result in the limit being hit.

However, overall GS is quite bullish on not hitting the debt ceiling: giving 70% odds to the debt limit being raised such that it won’t be hit until 2025. They’re only giving 6% odds that the ceiling will be hit and that most payments will be stopped (however, debt servicing will still be prioritized).

Goldman Sachs - Debt Limit Probabilities

As Goldman rightly notes, in their May 19 note, markets are heavily discounting the likelihood of the debt limit actually hitting. The overwhelming consensus view in markets right now is that a deal will be struck (although it’s debatable whether it’ll be a long-term deal or just a temporary lifting of the debt ceiling until later this year).

Part of the optimism stems from everyone (i.e., politicians, media commentators, etc.) treating June 1 as some kind of hard deadline when a deal needs to occur by. So even if they negotiate past this artificial deadline, there will still be some time to get a deal done before the x-date actually occurs.

Here’s a great chart from Goldman trying to project when the debt ceiling will be hit. As you can see, there’s still a sliver of room left under the ceiling on June 1, but things get exceptionally tight after another ten days or so...

Goldman Sachs - Debt Limit Projections

If the debt ceiling is hit does that mean a technical default has occurred?

Just because the debt ceiling is hit doesn’t mean that a technical default has occurred or will occur in the future as there will still be enough cash inflows to the Treasury to service debt moving forward (if interest payments are prioritized above other expenses).

This is partly why markets have been so sanguine about the real technical default risk. Because even if the debt ceiling negotiations drag past the x-date, this doesn’t mean a technical default has taken place.

For example, Moody’s has said: “Our definition of a default is a missed interest payment. Any other payments that might be missed... Social Security, prioritization of other payments, that’s not a default by our standard... a missed interest payment would need to occur for a downgrade to happen.”

S&P was event more blunt saying, “Default occurs when a payment of a security is missed...” and “...There is a date [x-date] at which the Treasury has no more space to deploy extraordinary measures and maneuver... Reaching such a date is not necessarily an event of default or the equivalent of missing a debt service payment”.

To be clear it’s not that passing the x-date won’t be disruptive to markets. It almost certainly will be, just as the 2011 debt ceiling episode was. However, the doomsday scenario many paint of a technical default occurring just because we reach the x-date without a deal misses some important nuance.

What would happen to treasuries during a technical default?

Needless to say, a technical default would almost certainly roil markets – equities would likely trade down significantly, credit spreads would expand, etc. – but when it comes to the practicalities of what happens to treasuries after an event of default it’s a bit more mundane.

The Treasury Market Practices Group (TMPG) has said that “standard market practices for trading and quoting Treasury securities should continue to be used in the event that a payment on Treasury debt is delayed”.

Therefore, functionally, the maturity of any security coming due would simply be rolled back a day. But it could still be traded and used in repo markets as if the default had never happened. Then, after the debt ceiling is raised, the investor would be made whole on the maturity date (i.e., the same day or the next day since all maturities are rolled one day into the future).

What would you expect the dollar to do if we get to the x-date, past the x-date, or even have a technical default?

However, it’s important to go a layer deeper. Fundamentally, any one of these scenarios occurring would represent a large risk-off event in markets and precipitate a fleeing to safe havens – and, historically, the premier safe haven has been USD.

This is why many were surprised back in 2011, when we had the last debt ceiling brinksmanship, that on the days US CDS moved up the most, the USD actually strengthened. And during the risk-off atmosphere following the resolution to the debt ceiling issue back then, when equities declined significantly, the USD actually strengthened against almost all currencies other than JPY.

Citi - USD Performance Around Debt Ceiling

Citi sums this up well in a recent note saying, “So from a tactical perspective, the rising risk aversion that is likely if the debt ceiling does not get raised is likely USD bullish.” This isn’t an overly contrarian sentiment. In fact, in the past few weeks there have been many bullish USD calls as the debt ceiling has come into focus as a more serious issue. The flight to safety is a real phenomenon, and when there’s a flight to safety the USD is almost always one of the primary beneficiaries (even when it’s the actions of the US causing uncertainty in markets).

The VIX seems incredibly low right now, so does everyone just think that the debt ceiling issue will be resolved well before the x-date?

In the past few months, as regional banks roiled markets and then the debt ceiling issue came to the forefront, many have scratched their head over how these issues are consistent with a VIX level that seems so low.

It’s true that the VIX level today is at around the 10th percentile of its post-pandemic history. However, when we zoom out a bit it’s at the 50th percentile for the longer-term. Similarly, if you look at VIX futures, in particular the slope between UX1 (May expiration) and UX3 (July expiration) what you see is an increasingly steep curve (60th percentile post-pandemic, 70th percentile all time).

Citi - Debt Limit VIX Movement

So it’s true that the VIX isn’t flashing any obvious warning signals right now for equities. But just looking at the VIX level today doesn’t necessarily show you the full picture. In particular, when looking at VIX futures you can see that the market is bracing for the potential of enhanced volatility in the future. Although, as mentioned before, the broad market consensus is that the debt ceiling issue will be resolved before the x-date so the probability being assigned to this enhanced volatility occurring is quite low (thus why the current VIX level is still reasonably low).


In the end, the possibility of a debt ceiling deal not being reached by the x-date is being viewed by markets as reasonably unlikely and the possibility of a technical default occurring even less so.

However, as of this writing, it does appear that the negotiations are going to drag on for longer than many anticipated. For example, as you can see in one of the screenshots above, Goldman assigned a 10% probability to a deal being worked out this past weekend. But not only was no deal worked out, it appears the two sides are more at odds than they were going into the weekend.

Because negotiations appear poised to drag on, in the upcoming week you should anticipate there being increasingly hyperbolic articles, in particular from the non-financial press, about an imminent default being around the corner.

But hopefully this post has done a reasonably good job of sketching out a more nuanced portrait of what’s really happening: most importantly that the x-date is a moving target, not set in stone at the first of next month, and that the x-date passing does not mean a technical default has actually occurred.

Today, the probability of a technical default occurring that’s priced into 1y CDS spreads is around 3.5-5% (there’s a range here because of nuance surrounding the cheapest-to-deliver option in the CDS, so the probability is informed by how the price on the cheapest-to-deliver security, currently the 1.25% May 2050, moves in the coming weeks). This probability isn’t non-trivial but, for what it’s worth, it was higher back in 2011 when it was in the 6-8% range.

Of course, the past few years have been littered with episodes of the market failing to properly price in certain scenarios (i.e., the rapid rise in rates we saw through 2022!). But hopefully this time the probability of default being priced in reflects reality and intransigence in Washington doesn’t lead to an outcome that’ll be (very) messy.

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