|Author||Topic: Interview Question - Please help!!!|
for the second round of the interview for a "High Yield Trading Desk Analyst" job I've been given a company's issue to analyze and come up with a buy, sell or hold recommendation.
The only clues I was given: Look at ratios (Operational and Financial) and compare the spread with peers' spreads and advise.
This is what I'm planning so far:
What are all the similarly rated bonds' spreads (what other factors do I include, duration, risk factor etc etc)?
What are all the similarly rated bonds in the sector spreads (Again how do I further refine this?)
Again, the problem I have is, how exactly does one find peers to relatively value a issue!!!
|A similarly rated bond is one of a similar credit rating, maturity are two big ones, then you have the industry, which would be another major factor, liquidity, based upon size is another factor to look at.
Just look at bonds in the same sector basically.
They want you to see if A) the company ratios are decent enough, i.e. cashflow and liquidity are high enough to meet the bond rating. Look at other factors, i.e. financial leverage and operating leverage as well as CFO and liquidity ratings. Also pay attention to bond covenants as they will earn you "thoroughness" points and potentials for breaches of negative covenants. As well, look at things like as sinking fund provisions that will overall improve the overall borrowing capacity of the company. B) If the company is in good shape to sustain itself and pay off it's debt obligations, then a higher yield would be a buy and so on.
|you can run a multiple regression like f(spread)=all sorts of ratios, bond characteristics; then estimate coeficients, remove irrelevant (step-wise regression?), plug your data into the model, determine relative value. You will have separate groups of analyzed bonds by: price, options, coupon, volume, anything else, that is, when you run regressions try to compare apples with apples.|
CFA Discussion Topic: Interview Question - Please help!!!
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