Free content

Quote Of The Week

Creating A Suitable Basket

Bangkok-based Thai Farmers Asset Management, the asset management arm of Thai Farmers Bank with over THB130 billion (USD3.1 billion) under management, is looking at investing in equity-linked and credit-linked notes within six months for the first time, according to Yingyong Nilasena, first senior v.p. of fixed income in Bangkok. "With interest-rates heading down this year, we're looking for enhanced yield," said Nilasena.

Credit-default protection on telecom companies tightened on Tuesday, grinding in even further Wednesday morning. The moves were sparked by the credits' improving equity performance and investors showed comfort that companies have begun to take needed write-downs from investments in third-generation licenses, said traders in London. In addition, Deutsche Telekom announced it was on track to report higher full-year earnings compared with last year, which tightened the price of its five-year protection to 270 basis points/280bps on Wednesday morning from 295bps/300bps on Monday, according to traders.

UBS Warburg has started publishing a weekly equity derivatives research report on South Africa for institutional investor clients. John Gilchrist, director and head of equity derivatives for South Africa, said the report will focus on the listed derivatives market, but will include commentary on over-the-counter derivatives where it impacts pricing.

The cost of U.S. dollar/euro options fell last week in line with a stronger dollar and gains in the U.S. equity markets amid quiet end-of-summer trading. One-week euro/dollar implied volatility fell to 9.75% Thursday in New York from 11.25% Monday, according to traders. "The dollar has recovered somewhat on stronger stock prices, so vols are lower," summed up one trader. He said higher U.S. equities last week seemed to be offsetting a longer-term trend that bodes well for the euro. The Federal Reserve's shift toward a tightening bias earlier this month and the increasing realization that short-term interest rates, and thus yields, will be higher in Europe is positive for the euro. With that in mind, a common trade last week was for investors to buy long-dated euro calls with strikes at parity and above. But short-term that move higher is unlikely to happen. "People are willing to bet that trend is not going to come into play in the next week, otherwise they wouldn't be selling volatility," a trader said. Spot was USD0.97 Thursday, down from USD0.981 Wednesday.

Taplin, Canida & Habacht was planning to buy $10-20 million in General Motors 8% notes of '31 (A2/BBB+) last week. Bill Canida, portfolio manager of the firm's $4.5 billion in taxable fixed-income, says auto spreads are at historic wides, and he does not believe the Big Three automakers are a legitimate bankruptcy risk. The GM paper was trading at 291 basis points over 30-year Treasuries last Monday. The money manager has already been buying the GM bonds, as well as the Ford Motor Co. 7.45% notes of '31 (A3/BBB+), which were trading at 387 basis points over 30-year Treasuries last Monday, and the 7.375% notes of '11, which were trading at 396 over 10-year Treasuries. Canida says the firm will not add more Ford paper because it is already fully allocated, and he believes Daimler Chrysler's bonds are still trading too tight relative to those of its competitors.

Steven Jones, portfolio manager with Missouri Valley Partners, says that when the 10-year Treasury yield rises to 5%, he will extend the portfolio's duration to 4.30-years from its current 3.90-year duration, or 10% longer, by adding Treasuries. Jones says last Monday's 4.28% Treasury yield is not sustainable, citing his firm's bullish economic forecast. Jones adds that when he hits his 10-year Treasury yield trigger, he will rotate 10% of the firm's portfolio, or $80 million, into 10-year Treasuries. He will finance the purchase by using cash and selling high-grade corporates.

Pictet & Cie, which manages SF20 billion in fixed-income assets, E3.5 billion of which is devoted to European fixed income, is looking to sell volatility embedded in bonds or in options directly, says Rajeev de Mello, fund manager. "I think some of the volatility in bond markets will calm down. I'm not convinced central banks will cut rates, which will take volatility out of markets. It's an easy trade to make in this environment," he says.

Barclays Capital has hired Michael Keeley from Dresdner Kleinwort Wasserstein to join its structured capital markets group in London, which aids corporates seeking tax-efficient structuring. Keeley will report to Roger Jenkins, head of structured capital markets. Jenkins referred calls to the press office and Keeley could not be reached. Rowan Staines, spokeswoman at DrKW, and Caroline Rouse, spokeswoman at Barclays, both declined comment.

Terence Tsang, managing director and head of Asia Pacific debt markets at Merrill Lynch in Hong Kong, has resigned. Bob Sherbin, spokesman, said Antony Hung, head of the investor and issuer client groups in Hong Kong, has replaced Tsang. In recent months Hung was appointed as Asia Pacific head of the issuer client group, as the former head, Richard Stoddard, moved to a new role at Merrill in New York. "Hung's a rising star over there," said a market official, adding, "Now he's running the show." Hung was traveling and could not be reached.

Nea Capital is planning to launch its first hedge fund before year end and is currently looking for a prime broker. The fund, called Nea Capital Diversified Strategies, will be an equity market neutral fund and use options, said Michael Hanes, portfolio manager and trader. The London-based firm is currently negotiating with Barclays Capital, Deutsche Bank, UBS Warburg, Morgan Stanley and Bear Stearns as possible choices for a prime broker and will make a decision next month.