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The New Zealand Debt Management Office, which runs an approximately NZD36 billion (USD20.9 billion) debt portfolio on behalf of the government, is considering using interest rate and foreign exchange options for the first time. "Options would be useful in enabling us to broaden our range of funding products [and would] enable us to more effectively hedge our fx exposure," said Philip Combes, treasurer in Wellington. Combes explained that the debt agency is looking at issuing bonds with embedded interest rate options as well as using fx options to hedge outstanding positions.

Merrill Lynch has started trading options on corporate bonds. "Bond options give a new dimension to investment strategies," said Chris Francis, head of international credit research in London, adding that they offer a less linear payout to bonds or default swaps.

A senior index equity options trader who is under investigation by the Chicago Board Options Exchange for a customer transaction he executed in 2001, has quit Morgan Stanley in New York. The trader, Harry Silver, could not be reached for comment. Melissa Stonberg, spokeswoman at Morgan Stanley in New York, confirmed that Silver recently resigned, declining all further comment. Nancy Condon, spokeswoman at the CBOE, declined comment.

Al Vinjamur, co-manager of a quantitative group at hedge fund manager SAC Capital Advisors in New York, has quit the firm and is preparing to launch his own hedge fund. Vinjamur confirmed having plans to launch a new fund, but declined to give further details saying that the fund's business plan has not yet been finalized. DW first reported in February that Vinjamur planned to leave SAC (DW, 2/9).

Five-year credit-default swap spreads on Sprint moved in Wednesday as word circulated that the telecommunications giant plans to make tender offers for some of its debt. Credit protection on the name tightened to 140 basis points last Wednesday afternoon, 10bps tighter on the day and 40bps tighter on the week with Sprint swaps having exchanged hands at 100bps the week before, according to a trader in New York.

Crédit Agricole Indosuez last week completed a USD50 million single tranche structured mezzanine note, believed to be one of the first sold in the mainland. "There's been lots of potential for CDOs in all of Asia--it's only natural that customers in China also follow the trend," said Pierre Trecourt, Asian head of credit derivatives structuring at CAI in Hong Kong.

"The number of circumstances where you can take front end profit will be very limited."-- Wayne Upton, research director at International Accounting Standards Board in London, commenting on the proposed accounting rule change. For complete story, click here.

Derivatives desks were snapping up Swiss francs in the spot and options market to cover option positions they had executed over the last month. "The market was caught with its pants down," said Lars Ahlgreen, senior foreign exchange trader at Crédit Agricole Indosuez in London, explaining that most traders were short the Swiss franc. Over the last several weeks traders had been executing one-touch barrier options with strikes between CHF1.58-1.60.

In this article we introduce the construction process of Fubon Group's first managed CDO, Silk Road 2003-1. The first step was to build a reference pool of 50 credit-default swaps using our selection criteria. We then determined the size of each tranche, given the rating and spread of LIBOR, using Moody's Investors Service Binomial Expansion Technique. The final stage was to explore the effect of the diversity score on the funded size of the synthetic CDO and look at the subordination of debt tranches under different diversity score scenarios.

Swift Energy, a Houston-based oil and gas producer, has purchased collars and floors as a means of hedging price risk in its oil and gas operations and is planning further purchases. Scott Espenshade, director in investor relations, said the energy company regularly enters derivatives transactions as a means of protecting its capital with maturities normally extending to a year.

Thomas Fitzpatrick, Centennial Communication Corp.'s cfo, was receptive last week to suggestions from the market that his counterparts at rivals such as Nextel Communications and American Cellular buy him a drink following the success of the Centennial bond offering that lifted levels for wireless names (see story, page 4). "I'm always glad to help out," he said.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.