How do you evaluate credit risk in fixed income investments?

Sample interview questions: How do you evaluate credit risk in fixed income investments?

Sample answer:

Assessing Credit Risk in Fixed Income Investments

1. Credit Rating Agencies:

• Obtain credit ratings from agencies such as Moody’s, S&P Global Ratings, and Fitch Ratings.
• Ratings provide an independent assessment of the issuer’s ability to meet its debt obligations.
• Monitor changes in credit ratings over time.

2. Financial Analysis:

• Examine key financial metrics, including:
  • Debt-to-equity ratio
  • Interest coverage ratio
  • EBITDA margin
• Assess historical trends and key financial ratios to identify potential risks.

3. Industry and Market Research:

• Analyze the industry landscape and macroeconomic factors that may impact the issuer’s financial performance.
• Research market trends, competitive dynamics, and potential regulatory risks.

4. Due Diligence and Management Analysis:

• Conduct thorough due diligence on the issuing entity.
• Review management’s experience, track record, and business strategy.
• Assess the issuer’s financial policies, risk management practices, and corporate governance.

5. S… Read full answer