Top 4 UBS Global Markets Interview Questions and Answers
UBS has an interesting history when it comes to sales and trading. Throughout the 80s and 90s they incrementally grew their franchise just like all the other global banks were doing at the time.
However, toward the end of the 90s and into the 2000s, they began to rapidly expand. This culminated in having the world's largest trading floor in a converted aircraft hanger (that was larger than a football field) in Stamford, Connecticut (which is a pretty easy commute to New York).
Then the Great Financial Crisis happened - along with the ensuing loses and settlements - which caused UBS to dial back just how much emphasis it placed on sales and trading. This included selling its Stamford trading floor, which poetically has been turned into one of the world's largest laser-tag facilities.
While UBS - like other major European banks - has shifted toward placing less of a priority on sales and trading, it's still one of the leading global franchises for sales and trading (with particular strength in Europe and APAC, which matches where it has the strongest retail presence).
Further, over the past few years nearly all banks - including UBS - have begun to place an enhanced emphasis on sales and trading given that it can augment traditional investment banking revenue during periods of heightened volatility.
Finally, it's worth mentioning that over the past few years UBS has been one of the most aggressive in raising junior compensation (which is always a good indication of how a bank is prioritizing certain divisions).
UBS Global Markets Interview Questions
Below are some potential interview questions you could get for a UBS Global Markets (sales and trading) role. Keep in mind that UBS has a rotational program in some geographies and then fixed-placement in others.
For a brief moment 2s10s were inverted in early April. This raised alarm bells among some and caused quite a few articles to be written on it in Bloomberg, Reuters, etc.
All that 2s10s being inverted means is that the two-year treasury has a higher yield than the ten-year treasury (thus causing the shape of the yield curve between 2s10s to be slightly downward sloping as opposed to upward sloping as it normally is). You can see a chart of 2s10s here.
Many look at an inversion of the yield curve - but in particular between 2s and 10s - as being a signal that a recession will be occurring in the relatively near future. Since the late 1970s, it has been a relatively reliable indicator (predicting six of seven recessions).
The reason why folks get concerned over a 2s10s inversion is that the yield curve should have a "duration premium" embedded in it. In other words, you should get more yield when buying a bond that has a longer-dated maturity.
However, when 2s10s inverts what the market is signalling is that while they expect yields to be high over the next roughly two years, thereafter they expect a drop in yields (which means, naturally, an expectation that the Fed Funds rate will drop in the future).
It's important to note that the inversion we saw in April was not sustained and came during a period of incredibly high rates volatility (due to the Fed turning much more hawkish and the war in Ukraine). If we end up getting a recession over the next two years - as an increasing number of economists are predicting - then many will herald the 2s10s inversion of April as being a signal. However, it really shouldn't be counted unless in the months to come we have a persistent inversion that lasts for a longer period of time.
If inflation appears to begin to moderate, do you think central banks will pause the rate hike cycle?
This is a classic markets-based question because there's no right or wrong answer (because if you polled economists you'd get a variety of contradictory answers).
In my view, it's very unlikely that we'd see a pause - as some have suggested - in September of 2022 unless we see a very sharp reversal in core inflation. Inflation is incredibly volatile on both the way up and the way down, so it's difficult to read too much into the data in any given month (i.e., how much will the recent run up in oil prices translate into higher costs due to enhanced transportation expense -- are company's margins going to contract, or are consumers going to be passed the bill?).
If the Fed - or any other central bank - were to pause the rate hiking cycle, and then have strong inflation readings in the months after, they'd risk losing substantial amounts of credibility.
This credibility is essential to maintain, because when any central bank loses the confidence of the market and the general population then inflation expectations are at risk of becoming unanchored. What this practically means is that because individuals no longer have confidence in returning to a ~2% inflation rate, they'll begin spending more money in the present (expecting goods to cost substantially more in the future) and demanding large wage increases. This then leads to a wage-price spiral that can only be broken, as it was in the 1980s, by a prolonged recession that resets prices and wage expectations.
What commentators like Larry Summers, Jason Furman, and Ken Rogoff worry about - and why they've been so worried about the Fed's rhetoric - is that one of the Fed's primary policy tools right now is that when they say they're committed to getting inflation back down to target, people believe them. If they lose this, then they'll have to take more aggressive action to prove that they mean what they say (in other words, the Fed has the benefit now of the market doing some of the work for them by raising yields in anticipation of future action).
Bill Dudley - the former New York Fed president - has said that the Fed needs to introduce more slack into the economy to reduce inflation. What does he mean by that?
Dudley spent nearly a decade at the New York Fed and left only in 2018. Before arriving at the Fed, he was the chief U.S. economist at Goldman and he's now a research scholar at Princeton.
This week Dudley said the quiet part out loud: the Fed needs to introduce slack into the economy to get down inflation to anything close to target.
What Dudley means by this is that when labor markets are incredibly tight this gives employees more leverage when asking for raises (as there's a very limited pool of people to replace them with). However, when wages rise this gives consumers more purchasing power, which then contributes to higher inflation (as they're more willing to purchase goods if the cost has gone up, because now they have more money). Further, when firms have higher wage costs they can either contract their margins - which they obviously don't want to - or try to pass on the added wage cost to their customers through higher prices. If they do the latter, then this obviously contributes to inflation.
By the Fed's own forecast, the lowest sustainable rate of unemployment that's consistent with 2% inflation is 4%. Currently we're significantly under that and there are far more job openings than there are those looking for jobs.
Now it's not exactly politically acceptable for the Fed to come out and say that what they need to do is introduce more slack into the labor force (i.e., have the unemployment rate go up), however it's difficult to imagine the Fed getting inflation down anytime soon while the labor market is running so hot.
If rate expectations were to suddenly shift downwards, which asset class would respond the most favorably?
If we suddenly got some data that showed inflation was cooling significantly, or that economic conditions were rapidly deteriorating, then rate expectations would shift (i.e., there would be less future rate hikes priced in).
If this were to occur, we'd expect the most rate-sensitive assets (that have performed very poorly over the past six months) to have a sharp upward correction.
So, this would probably mean that equities would perform best (unless it looked like a large recession was about to occur). In particular, growth-oriented stocks would have the largest gains (i.e., the NASDAQ would see more gains than the S&P 500). However, we'd also expect corporate bonds and treasuries to have large positive increases (in price terms) as well (as the yields would go down significantly).
When discussing Credit Suisse Global Markets, I mentioned that despite their troubles a decade ago it was still a phenomenal place to land today. Likewise, while UBS did place less of an emphasis on their global markets business following the Great Financial Crisis, they've always maintained a strong diversity of desks across geographies.
Further, what we've seen out of UBS over the past few years is a reprioritizing of their Global Markets business given how well it's been able to augment their revenue during these tumultuous times.
If you haven't already, make sure to check out the sales and trading overview and the longer list of sales and trading interview questions I put together (there are also the sales and trading interview guides if you're looking for even more questions and desk overviews).