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Peter Demirali, portfolio manager at New Jersey-based Cumberland Advisors, says that he will increase the firm's corporate exposure by 20%, or $40 million, once the equity market improves. He will swap out of $20 million in taxable municipal bonds and agencies. The move will be triggered when the Dow Jones Industrial Average returns to the 9000 level. He says, it should hit that level early in the fourth quarter, once the accounting environment reaches a healthier state and due to regulatory changes and cleaner earnings looking forward. He states that the economy continues to be strong and that the poor performance of the equity market is entirely attributable to accounting scandals. When the trigger is hit, Demirali expects corporate spreads to stabilize first, before beginning to tighten as the equity market further improves.

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.

AMR Investment Services will increase its allocation to Yankee banks by approximately $200 million, using money from U.S. brokerage issues that will be maturing shortly. Bonnie Mitra, portfolio manager of a $3.5 billion short duration portfolio, says that while he would ordinarily consider reinvesting in the sector as AMR's brokerage bond mature, the recent turmoil in the equity market means less fee revenue for the brokerage credits. He adds that the related downturn in the M&A and IPO markets are also hurting the brokers' near-term growth prospects.

Five-year default protection on media giant AOL Time Warner tightened more than 60 basis points last week after the company announced it had secured a USD10 billion bank loan facility on Monday, easing fears of a liquidity crunch. Mid-market five-year credit-default swaps tightened from 480 basis points over LIBOR at the start of the week to 415bps by late Wednesday in New York. Five-year protection had been as wide as 560bps at the end of the previous week. "A lot of people were worried that something would prevent or delay the closure of the bank loan, so when they signed it there was a relief," said one trader in New York, referring to some of the recent accounting scandals among U.S. companies. He added the cost of protection had been pushed up in recent weeks before the loan was finalized, perhaps even by banks in the syndicate. Despite the short-term gyrations in the default-swap market, AOL's credit rating remains stable, according to Andrew Watt, a director and AOL analyst at Standard & Poor's in New York. "Our rating anticipated this financing; our view was that this would be put in place, but the market had some attention on external events that had no bearing on the credit profile," he noted.

Alex Braun, director of funding and asset management on the fixed-income side, and Paul Caldwell, a senior asset-backed and high-yield bond portfolio manager, have left Abbey National Treasury Services. The departures are the result of a restructuring in the wholesale bank, according to a spokeswoman. Braun's responsibilities have been divided, with funding now being part of the Treasury division and asset management coming under a newly established division--asset management and risk transfer. It could not be determined whether Caldwell will be replaced. Braun and Caldwell could not be reached for comment.

Bank of America has hired Bronia Jenkins, chief marketing officer at Volbroker, as head of foreign exchange options in New York. At the same time, Mark Mullet, a senior fx options trader atUBS Warburg, has been brought on board to trade fx options. He reports to Jenkins.

The credit derivatives market could be heading for a bust up on the same scale as last year's Railtrack debacle over a little-known clause contained in the bonds of Marconi Corp., according to industry bankers and lawyers. One trader estimated hundreds of millions of dollars in Marconi credit protection was traded up until last summer when the company hit financial difficulties.

Commerzbank is pitching foreign exchange options trades that anticipate a calm summer market, predicting euro/dollar will not climb as dramatically as other banks are forecasting. Nick Parsons, chief currency strategist in London, was recommending two trades last week with the expectation that the euro will reach parity, but not extend more than three cents above its recent high of USD0.9985. One trading idea is buying a two-month euro/dollar double no touch option with barriers at USD0.95 and USD1.03 for 21.75% of the total payout, and sell a three-month double no touch with the same barriers for 11.25%, for a total cost of 10.5%.

KommuneKredit, an association which provides financing to Danish government organizations, will be using both cross-currency and interest-rate swaps on approximately EUR800 million (USD792 million) in long-term debt throughout the remainder of the calendar year. KommuneKredit issues roughly EUR6 billion in debt per year, EUR2 billion of which is long-term debt. The association enters either interest-rate swaps, fx swaps or both on approximately 80% of its long-term debt, said Jette Moldrup, v.p. in treasury in Copenhagen. The company has raised approximately half of its yearly requirement.

Deutsche Bank is consolidating elements of its global cash and derivatives credit business in a move designed to take advantage of increasing overlap between the various elements of the credit business, according to Rajeev Misra, global head of credit trading in London. However, one official familiar with the firm said the moves are motivated by a need to cut costs, which Misra denied.

Deutsche Bank is looking to hire two to three mortgage-backed traders as part of an initiative to put its agency mortgage-backed trading team under the umbrella of fixed-income derivatives, said Jon Kinol, managing director of fixed-income derivatives and cross-rates trading in New York. The desk, which deals with Fannie Mae and Freddie Mac-related products, has previously been alongside other mortgage products such as commercial mortgage-backed securitizations.