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Dollar/yen implied volatility fell in the run up to last weekend's Japanese election because traders were predicting the ruling party will remain in power. One-week implied vol dropped to 9.75% from 10.35% the previous week. The polls indicate that the Liberal Democratic Party is likely to win by a majority and the decrease in volatility reflects this, said Giovanni Pillitteri, v.p. in foreign exchange options trading at Deutsche Bank in London.

Nederlandse Waterschapsbank, a Dutch water board funding authority, has entered a foreign exchange and interest rate swap on a recent six-year USD1 billion bond offering. Tom Meuwissen, head of the treasury in the Hague, said it is the authority's policy to convert all foreign currency liabilities back into euros.

One-month euro/dollar implied volatility slid downward last week as the dollar slowly made a comeback against the single currency. Last Wednesday implied vol on the currency pair traded at 9.9%, down from 10.5% the week before, according to a New York-based trader. The euro/dollar spot rate fell to USD1.15 to USD1.17 in the same timeframe, he said.

Robert Feilbogen, former energy chief at AIG Trading Group in Greenwich, Conn., which included energy derivatives, has filed a lawsuit against the firm for "breach of contract." The complaint, a copy of which was obtained by DW, has been filed with the U.S. District Court of the District of Connecticut. It claims AIG terminated his employment contract in July and that the firm failed to honor a guarantee to pay a USD1.3 million bonus, which Feilbogen claim shad been promised for 2003. In the complaint Feilbogen is seeking lost remuneration and legal costs. AIG announced it was merging AIG-TG with AIG Financial Products in the summer (DW, 6/1). The lawsuit is being pursued against both entities.

The battle between two nascent indices of credit-default swaps is heating up in Japan as rivals race to sign up additional market makers to increase trading volumes. But this time it is not iBoxx, but the CJ50 that is taking on TRAC-X (DW, 11/3). With both indices having roughly equal trading volumes and partners the decisions of Nikko Citigroup and Merrill Lynch are likely to swing the balance. An official at Nikko said it will come to a decision early next year, while dealers at Merrill declined comment.

Fitch Ratings plans to expand its correlation modeling for structured credit referenced to both corporates and asset-backed securities to Asia. Matthias Neugebauer, associate director in the synthetic CDO team in London, said it will launch an updated Vector model before Christmas. The current model has industry and country correlation statistics for Europe and North America.

Martin Ferraro, head of institutional sales for foreign exchange, which includes derivatives, at BNP Paribas in New York has departed the firm. It could not be determined whether Ferraro, who could not be reached, has moved to a competitor. Mark Wisniewski, spokesman in New York, did not return calls.

The U.S. credit derivatives market was all but paralyzed last week as credit derivatives professionals waited on the outcome of a review by Standard & Poor's into its rating on Ford Motor Credit. While it is generally accepted that Ford will be downgraded to BBB minus, from BBB on CreditWatch negative, what is less predictable is whether the auto giant will gain a stable outlook or continue to be on negative watch, said traders. Keeping the firm on negative watch in addition to any downgrade would put Ford en route to junk status and the effect of this would bleed across all credits, they said.

Michael Connor has left UBS, where he was global co-head of credit derivatives in Stamford, Conn., to join Merrill Lynch as managing director and product manager for structured credit products and exotics in New York. Connor, who did not return calls, reports to Jeff Chandler, head of credit trading at Merrill in New York, said Michael DuVally, spokesman in New York. Chandler did not respond to messages. DuVally declined further comment.

Goldman Sachs has integrated its U.S. investment-grade bond and credit derivatives trading desks with its convertible-bond trading operation and tapped Gregg Weinstein, managing director and global head of convertibles, to oversee the enlarged unit. The three businesses will be able to work more closely together under the new structure, according to one official. Weinstein declined comment. Goldman combined its credit and convertible bond teams in Asia last year (DW, 10/27/02). A similar move for Europe is under evaluation, the official added.

Foreign derivatives houses in Korea, including Citigroup and Merrill Lynch, are preparing to trade derivatives directly with the multi-billion dollar investment-trust industry and domestic securities houses on the back of upcoming deregulation.