Derivs - Credit

Asian and U.S. firms that don’t plan to market securitized transactions to European Union credit institutions theoretically could get hit with a new E.U. law concerning risk retention if anyone buying into part of the deal enters into over-the-counter derivatives with an E.U. institution.

A plan to increase risk weightings for banks’ exposures to central counterparties may cool down dealers who might have been keen to push clearing for clients.

After the emphatic rally of last week, the sovereign credit markets came back down to earth this week as they were reminded that the eurozone debt crisis is far from resolved.

Deutsche Bank will defer up to 90% of the amount of some 2010 bonuses over three years. The level would be applied to its more senior employees and those identified as senior risk takers, and set the firm apart from rivals, who are deferring less.

Privately-placed arbitrage-driven synthetic structured credit deals have been picking up in Asia with emerging market banks and insurers as some of the most active buyers.

The European Securities and Markets Authority is expanding its derivatives, credit rating agency and asset management expertise, and has today begun hiring for its Markets and Intermediaries Division.

Credit default swaps are being deployed to capture the view spreads of European corporates located in core countries and those in so-called peripheral European corporates will converge. Players, among them hedge funds, are making the trades on the view European authorities will forge a solution for peripheral countries to deal with their debt loads.

Endusers, such as hedge funds and loan desks, have been ramping up usage of options on European and U.S. credit indices taking the view the potential for a continued rally as limited.

Hari Thirumalai, a former analyst on the credit proprietary trading desk at Bank of America Merrill Lynch in London, has joined UBS as an executive director and trader in structured credit, also in London.

The Matrix-PVE Global Credit Fund, advised by London-based hedge fund manager PVE Capital, is considering using credit default swaps or options on indices to go long European utilities and telecommunications companies over the next two quarters.

Three themes were occupying the sovereign markets last week: the improving economic climate in the developed world, the fate of the European Financial Stability Facility and geopolitical turmoil in the Middle East.

Some investors wrongly assume that the credit default swap market is massive and are swayed by the notion that the liquidity of derivatives is limitless.