Debt Capital Markets

3 calculators on this page

Going deeperThe new-issue concession, in cash Yield to worst on a callable

SpecialisedWhat a tender costs

This deskWhat it does, who is in the room, and how the transactions relate.

The desk at a glance

Debt capital markets is the business of selling a borrower's promise to pay, to hundreds of investors, in an afternoon. A benchmark bond is announced in the morning, built through the day and priced before the market closes — which makes it look like the simplest desk in the bank and is exactly why newcomers underestimate it.

The speed is possible only because almost everything was done beforehand: the programme documentation, the ratings, the disclosure, the investor conversations. What happens on the day is a negotiation about one number — the spread over the risk-free curve — and everything else was settled weeks earlier.

That one number is the whole subject. A bond's yield is a government yield plus a spread, and only the second part is about the borrower. An issuer whose spread has not moved can still see its cost of funds rise by a percentage point because the underlying curve moved for reasons that have nothing to do with it, which is the first thing that confuses somebody arriving from the equity side.

Who does what

• The syndicate desk owns the day: the announcement, the initial price thoughts, the revision, the final spread. It is the closest thing on this half of the site to a trading seat — see the investment-grade issue.
• The origination bankers own the relationship and the year: when this issuer should come, in what currency, at what maturity, and against which of its existing bonds the new one will be priced.
• The rating agencies decide, in effect, who is allowed to buy. Many investors are mandated to hold investment-grade paper only, so a notch is a change in the buyer base rather than a small move in credit quality.
• The trustee or fiscal agent holds the bondholders' rights afterwards. Which of the two it is decides how easily holders can act together later — a detail that matters enormously in restructuring and nowhere else.
• The investors — insurers matching liabilities, funds tracking an index, banks holding liquidity buffers. Their mandates, not their opinions, decide most of the demand.

What decides whether this desk is busy

Six mechanisms, each with the direction it pushes in and the thing to watch. None of them is a forecast, and none is a number that goes out of date.

The calendar this business keeps

Every desk has a rhythm its regulars plan around and a newcomer discovers by being surprised by it.

How this desk reaches the rest of the site

The deals and the instruments are one subject. These are the corridors — each one a mechanism, not a resemblance.

How the work is actually doneWhat the client pays for, the documents in order, and the arithmetic.

What the client is actually paying for

Underwriting fees on a straightforward investment-grade bond are a small fraction of the money raised — far smaller than on an equity deal, because the risk being underwritten is far smaller. The bond is placed before it is priced; a syndicate that has built a book knows what it is selling and at what level.

The real cost is the new-issue concession, and it is the clearest single number in the transaction. A new bond is deliberately priced a little cheap to the issuer's own existing curve so the book fills and the bond trades up rather than down on the first day. That difference — a few basis points on a large amount, for many years — is what the issuer paid for being certain the deal would clear. Whether it was right is answerable an hour later, by looking at where the bond trades.

Two structures change the economics entirely. On a bridge facility the bank lends its own balance sheet against a promise to refinance later, and is paid for the risk of holding it — see bridge to bond. On a liability management exercise the fee reflects an outcome nobody can guarantee: whether holders accept.

Which blocker decides across this desk

• Price4 of 9The two sides cannot agree what it is worth.Decides: High-yield bond issue, Investment-grade bond issue, Liability management, Sovereign syndication. Matters on 3 more.
• Financing0 of 9The money is not there, or its cost moved under the deal.Decides: none of them. Matters on 1 more.
• Approval3 of 9A regulator, a court, a board or a shareholder vote says no.Decides: Covered bond issue, Hybrid capital issue, Note programme. Matters on 3 more.
• Diligence1 of 9What was found when the buyer actually looked.Decides: Private placement. Matters on 2 more.
• Execution7 of 9Documents, disclosure, timetable, and the people running it.Decides: High-yield bond issue, Hybrid capital issue, Investment-grade bond issue, Labelled bond issue, Liability management, Note programme, Private placement. Matters on 2 more.

The documents, in the order they appear

• The programme — for a repeat issuer, a standing set of documents updated annually, so a single deal needs only a short supplement. This is what makes same-day execution possible at all; see the medium-term note programme.
• The prospectus or offering circular — the disclosure. For a debut issuer it is months of work; for a programme issuer it is a document that already exists.
• The final terms — the pricing supplement: amount, coupon, maturity, spread. Short, because everything else is in the programme.
• The subscription agreement — between issuer and banks, signed on the day.
• The trust deed or fiscal agency agreement — where the bondholders' rights actually live, including how a majority of them can bind a minority later.
• The terms and conditions — the covenants, the events of default, the redemption options. On investment-grade paper they are thin; on high yield they are the transaction.

Run the numbers

Interactive: the new-issue concession, in cashHard

Open this calculator on its own page →

A new bond prices off the curve plus a spread, and then pays a little more than that to get done. That little more is a real number and somebody pays it.

Benchmark yield % Credit spread (bp) New-issue concession (bp) Issue size ($m) Maturity (years) Modified duration

Fair-value yield

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Yield it clears at

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Extra coupon over the life

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Price gain if it trades back

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That, across the issue

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Annual coupon cost

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Reading

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The concession is a market convention, not a defined term: it is whatever the difference turns out to be between where the curve said and where the book cleared. Information and education only. Not advice, not a valuation, and not a quote for anything.

Interactive: yield to worst on a callableHard

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A callable bond is a bond plus a short option, and the borrower owns the option. So the yield anybody quotes is whichever of two numbers is worse for the holder — which is what "yield to worst" names.

Price (per 100) Annual coupon (per 100) Years to maturity Years to first call Call price (per 100)

Yield to maturity

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Yield to the first call

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Yield to worst

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Distance between them

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Price against par

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Reading

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Annual coupons and a single call date, which is the simplification that makes the arithmetic readable; a real schedule has several call dates and a day-count convention. Information and education only. Not advice, not a valuation, and not a quote for anything.

Interactive: what a tender costsMedium

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Buying your own bonds back means paying above where they trade, because the holder has to be given a reason to sell today. The premium is the visible price of consent.

Amount outstanding ($m) Market price (per 100) Tender price (per 100) Participation % Carrying value (per 100)

Face tendered

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Cash paid out

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Premium over market

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That, in per cent

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Against carrying value

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Left outstanding

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Reading

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The line against carrying value is an accounting difference on stated inputs, not a gain anybody banks: how it is actually recognised depends on the standard and on whether the exchange counts as a modification. Information and education only. Not advice, not a valuation, and not a quote for anything.

Go deeper, and practiseLonger pieces, what an interview asks here, and a page to print.

Go deeper

How a deal dies here

• The window closes mid-morning. A number is released, the curve moves, and an issuer that announced two hours ago withdraws rather than pay the new level. A pulled deal is embarrassing and reversible; a badly priced one is neither.
• The book does not build at the revised level. Orders placed at the initial thought drop away when the spread is tightened, and the desk has to choose between size and price.
• A rating action lands. An outlook change days before a planned issue can remove a whole class of buyers.
• The disclosure is stale. A company cannot sell bonds on financial information that is out of date, which is why the calendar clusters into a small number of open weeks.

Test yourself: debt capital markets

Quick questions on this desk — four options each, checked entirely on your device, nothing stored or sent. Wrong answers come with explanations, and the deep dives above hold every one of them. For education only.

What an interview asks here

DCM questions test whether you separate the curve from the credit, and whether you know that a bond's protection comes from the refinancing need rather than from its covenants.

Try each one out loud before you open it. What is underneath is the shape of a complete answer, not a script — somebody who can produce those parts in their own words can also answer the four variations that follow, and somebody who has memorised a paragraph can answer one.

Q1How is a new bond priced?

What it is checking. The foundational question, and the answer has to start with the benchmark rather than with the company.

A complete answer contains:

• Start from the relevant benchmark yield at the chosen maturity — a government curve or a swap curve, by convention for that market.
• Add a credit spread, read off where the issuer's existing bonds trade and where comparable issuers price.
• Add a new-issue concession: a few basis points more than fair value, because the buyer is taking a fresh line in size on one day.
• The process is initial price thoughts, then guidance as the book builds, then launch and final terms — usually inside one morning.
• The evidence of demand is not the headline coverage but how much size survives each tightening.

Read it properly: Investment-grade bond issue · The concession, in cash

Q2The company's spread widened 20 basis points and its yield fell. Explain.

What it is checking. Whether you hold the two components separately in your head. It is a fast filter.

A complete answer contains:

• Yield is the benchmark plus the spread. They move independently and frequently in opposite directions.
• So the benchmark fell by more than 20 basis points, and the all-in yield fell even though the credit got worse.
• This is why a treasurer looking at an all-in coupon and a credit analyst looking at a spread can disagree about the same week.
• It also explains why issuance windows open on rate moves rather than on credit improvement.
• And why a fixed-rate issuer hedging the benchmark separately from the spread is doing two different trades.

Read it properly: Credit spreads · Investment-grade bond issue

Q3Why do investment-grade bonds have almost no covenants?

What it is checking. The question that separates a bond person from a loan person, and there is a real answer rather than a shrug.

A complete answer contains:

• Investment-grade protection rests on the rating and on the borrower's need to return to the market, which disciplines it continuously.
• The change-of-control put is usually the whole of the protection, and it is normally conditioned on a rating downgrade — so a takeover that keeps the rating triggers nothing.
• High yield works oppositely: incurrence covenants let the borrower act only if a test is met at that moment.
• A loan works differently again: maintenance covenants are tested every quarter regardless of what the borrower does.
• So the same company can be comfortably inside its bond terms and close to breaching its loan.

Read it properly: High-yield issue · Bond vs. loan

Q4Why would an issuer run an MTN programme rather than issue one bond?

What it is checking. A practical question about how issuance actually works, and most candidates have never thought about the timetable.

A complete answer contains:

• The documentation is standing and already approved, so a window that opens on a Tuesday morning can be used the same morning.
• It supports many small drawings in different currencies and maturities, including reverse enquiry from a single investor.
• That flexibility is worth more to a frequent borrower than the pricing on any one trade.
• A single benchmark issue is the opposite trade: size, liquidity and a visible curve point.
• So a large issuer runs both — a programme for opportunistic funding and benchmarks to build the curve everything else prices off.

Read it properly: MTN programme · Private placement

Q5What is a covered bond and why does it price through senior unsecured?

What it is checking. A structure question that tests whether you know dual recourse is a statutory thing rather than a contractual one.

A complete answer contains:

• The investor has recourse to the issuer and, if the issuer fails, to a ring-fenced pool of assets that stays on its balance sheet.
• That pool is governed by statute in most European jurisdictions — eligibility, over-collateralisation and supervision are set in law rather than negotiated.
• So the buyer is taking a much weaker credit view than on the same issuer's senior unsecured debt, and prices accordingly.
• It is the instrument that stays open in windows where senior unsecured cannot be sold, which is its whole purpose to an issuer.
• Contrast a securitisation, where the assets are sold to a vehicle and the protection rests on a true sale opinion instead of on a statute.

Read it properly: Covered bond issue · Securitisation

Q6Where does the new-issue concession actually go?

What it is checking. A follow-up designed to see whether the candidate can turn a basis-point number into money.

A complete answer contains:

• It is paid by the issuer, in coupon, for the life of the bond — so it is size times the concession times the years, undiscounted.
• It is received by the initial buyers, as a price gain if the bond trades back to fair value.
• That day-one gain is roughly the concession times the modified duration, which on a long bond is many times the annual coupon effect.
• A negative concession — pricing through the curve — happens when the book is many times covered, and it is the issuer capturing the scarcity.
• A wide concession says either the issuer is paying to be sure of the money, or the book is thin.

Read it properly: The concession calculator · Investment-grade bond issue

Q7What is a labelled bond, and what does the label actually bind?

What it is checking. Whether the candidate knows the difference between a use-of-proceeds commitment and a credit feature.

A complete answer contains:

• The label attaches to what the proceeds are used for, or to a target the issuer commits to, and it is disclosed in a framework document.
• It does not change the credit: the bond ranks the same as the issuer's other senior debt and defaults with it.
• Failing the commitment usually triggers a coupon step-up or a reporting obligation rather than an event of default.
• Verification is by a second-party opinion or an assurance provider rather than by a regulator, in the voluntary-standard version.
• The EU Green Bond Standard, adopted in 2023, makes the designation a legal one with defined criteria — which is a change in kind, not in degree.

Read it properly: Labelled bond issue · Investment-grade bond issue

Q8A borrower needs money for an acquisition that closes in nine months. What do you do?

What it is checking. A structuring question with a specific answer that most candidates have not met.

A complete answer contains:

• Provide a bridge facility so the buyer has certain funds and can announce, then refinance it in the bond market when a window opens.
• The bridge is priced to be unattractive to keep — margin steps up over time, precisely so the borrower refinances it.
• The risk sits with the underwriting banks between commitment and take-out, which is what they are paid for.
• If the market closes, the bridge stays drawn and becomes a hung position — the characteristic way a cycle ends.
• So the size of the bridge relative to the market's capacity to absorb the take-out is the real question at commitment.

Read it properly: Bridge to bond · The leveraged finance desk

Do these against a clock → — one at a time, ninety seconds each, answer before you look.

Whose questions these are. Every question on this page was written for this publication. None is taken from anybody else’s question bank, and none is a claim about what any named firm asks — that is neither verifiable from here nor ours to assert. They are our own reading of which mechanism a question of this kind is testing. Information and education only.

How the transactions fit together

One transaction stands at the middle of this desk and everything else is a variation on it. An investment-grade bond issue is a company borrowing from the market at a spread over a government curve, with documents that assume it will pay. A high-yield issue is the same transaction where that assumption is not made: the covenants do the work the rating does not, the document is several times longer, and the call schedule matters as much as the coupon. A hybrid capital issue moves down the same borrower's stack until the instrument stops behaving like debt, which is the point of it.

Security and scale change the rest. A covered bond issue gives the investor recourse to the bank and to a ring-fenced pool, which is why it prices where it does. A sovereign syndication is a government choosing a book of named buyers over an auction, usually for a size or a maturity an auction would not absorb comfortably. A private placement goes the other way: no listing, few investors, terms negotiated rather than quoted.

Two are about the shape of the borrowing rather than a single trade. A note programme is documentation written once so that later issues take days instead of months, and liability management is the desk working on debt that already exists — buying it back, exchanging it, or moving its maturity — which is where this desk meets restructuring, with the difference that here the borrower still has a choice.

Concepts to master

• Spread, not yield. Everything on this desk is quoted and negotiated as a spread; the yield is an output. See credit spreads.
• Where a bond sits in the structure decides its recovery, not the headline amount. Senior, subordinated, secured, guaranteed and structurally subordinated are five different instruments from the same borrower.
• The maturity wall converts choice into obligation. Every issuer publishes its own refinancing calendar years in advance, and the market reads it.
• Index eligibility is demand. Minimum size, currency and remaining maturity decide whether passive money can hold the bond at all.
• Everything sold here becomes an instrument on the other half of the site the moment it settles — see fixed income and credit.

Analysis

⬇ The whole desk on one printable page

Who pays whom, drawn

The timetable on a transaction page says what happens and in what order. These say where the money goes — every payment between the parties, and what each one is for. Only the transactions where the cast list alone does not answer that carry one; each diagram sits on its own page.

• Covered bond issue — A covered bond: two claims, not one

Who does this: Debt Capital Markets is a sell-side seat in Investment Banking, alongside Mergers & Acquisitions, Equity Capital Markets, Leveraged Finance, Restructuring, Structured Finance, Valuation & Deal Analysis. See the industry map.