Derivs - Credit

Hedge funds and real money desks were seen re-entering hedges on iTraxx Main in a week when flow in credit options was dominated by sellers of volatility across indices, especially on out-of-the-money strikes.

John O’Brien, former managing director and head of New York derivatives sales at Bank of America Merrill Lynch, started at Deutsche Bank this week.

Hedge funds are holding back from signing up to the International Swaps and Derivatives Association protocol, which will automatically upgrade existing derivatives transactions between two signing counterparties to the new 2014 credit definitions. The funds want to wait and see how liquidity compares after the new contracts are released on Sept. 22.

Insurance firms have been entering six-to-18 month hybrid out-the money S&P 500 equity 90-to-95% put options over the last month that execute should rates rise.

UBS listed Tuesday on the Frankfurt and Stuttgart stock exchanges a new tracker certificate that uses a Solactive hedge fund index as the underlying.

Buyside firms are taking responsibility for reporting of collateral and valuations in-house, voicing fears that delegating reporting of such data creates liability concerns.

Volatility arbitrage hedge funds were seen last week buying far out-the-money November 2014 and March 2015 calls on realized S&P 500 forward variance swaps.

Société Générale is seeing interest among macro hedge funds for outperformance options that pit a newly created Japan buyback index against the Topix Total Return Index.

Overall credit default swap notional that was reported to swap data repositories last week decreased by 27% from the previous week, according to data from the International Swaps and Derivatives Association. This follows a decrease of 30% from the week prior. Overall interest rates derivatives trading that was reported, also declined by 13%.

Fund managers are taking long positions on peripheral banks cautiously, expecting an imminent European balance sheet review to reveal further inconsistencies similar to those at Banco Espirito Santo, which resulted in the Portuguese government splitting the bank.

Investors are shifting to short-dated September or October puts on the S&P 500, targeting strikes between 1,900 and 1,800.

PIMCO potentially sought to limit the amount it needed to pay from its credit default swaps on Argentine bonds when it voted against including two Japanese law-restructured notes from being included in the upcoming CDS auction, according to market officials.