Over the last two weeks, Lehman Brothers has bought some GBP800 million (USD1.15 billion) (notional) in swaptions. Traders speculated that the firm bought the options on behalf of Morgan Grenfell Private Equity, which is purchasing pub assets from U.K. entertainment and leisure conglomerate Whitbread, and securitizing some GBP1.6 billion (USD2.3 billion) in future pub revenue. Lehman is lead managing the securitization.
Lehman bought three-month options to receive a rate of 5.5% in a 10-year swap. Traders speculated that Goldman Sachs and Barclays Capital were the two largest counterparties to the trades. But, they added, most banks active in sterling swaptions took some part of the deal. Officials at Lehman Brothers and Goldman Sachs declined comment. Press officers at Barclays Capital did not return calls by press time.
A London-based swaptions trader said the tranaction was "the trade of the quarter," because of its sheer size--a GBP100 million trade is considered large in the sterling swaptions market. Lehman bought the bulk of the swap two weeks ago and added to it last week. The receiver swaptions had an implied volatility of approximately 13.6%, according to the Black-Scholes option-pricing model.
Traders said the spread between the 10-year and 30-year swap widened to 17 basis points from 6bps the previous Wednesday.
