Derivs - Credit

Investors are profiting by trading long and short baskets on a systematic single-name screening framework by Barclays. According to Søren Willemann, head of European credit strategy in London, the framework produced a return of 10 basis points for the long basket and 4 bps for the shorts on a delta-hedged basis over four weeks from Aug. 2.

Structurers in Japan are seeing a return in interest among private bank investors for structured products referencing U.S. dollar 10-year swap rates, as U.S. quantitative easing tapering in the short-term could lead to rates moving even higher.

The Royal Bank of Scotland in Japan is marketing six-month yen-denominated Nikkei 225 contingent payer swaptions to hedge fund investors as a hedge against a selloff in Japanese government bonds and equity.

Emerging markets have endured a two-pronged assault in recent weeks. Concerns about quantitative easing tapering have driven U.S. Treasury yields higher and triggered outflows from EM funds, while fears that China could struggle to engineer a soft landing for its economy have made matters worse for countries dependent on Chinese demand.

Trudy Lee, managing director and head of fixed income markets at Credit Agricole in Singapore, has left the firm.

The iTraxx Main rose just six basis points to 107 bps yesterday reflecting temporarily improved liquidity in light of U.S. Senator John Kerry’s promise of military intervention over the use of chemical weapons in Syria. However, the widening is unlikely to continue, according to Juan Valencia, credit analyst at Société Generale in Paris. “This is more a case of poor liquidity and some players wanting to push the indices wider, so people take advantage of the risk aversion,” he said. Valencia also said that geopolitical tensions have historically not been great drivers of long term widening in European credit indices.

Algorithmic and high-frequency trading does not affect the volatility of futures prices, according to a report by the Futures Industry Association.

Option premiums on the U.S. dollar against emerging market currencies are becoming more expensive as EM economies stay under the spotlight and geopolitical tensions related to Syria escalate. Liquidity in the options market has also deteriorated as a result.

Investors should sell five year credit default swaps on KPN following news from the Dutch telecom company’s biggest shareholder, América Móvil, that it will vote in favor of a takeover by Telefonica Deutschland AG of KPN’s German unit, E-plus.

Kevin Walker, the former partner and head of multi-asset sales to pension funds and insurance companies at Goldman Sachs in London, is set to join Citigroup in a new role.

Credit Suisse is recommending receiving two-year repurchase agreement interest rate swaps on the Chinese reminbi, to position for improvement in liquidity conditions.

Tullett Prebon has filed an application to the U.S. Commodity Futures Trading Commission to become a swap execution facility under Dodd-Frank, three weeks after the final SEF rules became effective.