Free content

George Schupp, portfolio manager withU.S. Bank Asset Management, formerly known asMississippi Valley Advisors, says he will rotate 5% of the firm's $2 billion portfolio, or $100 million, from Treasuries into corporates when single-A rated corporate bonds widen by 50 basis points. Single-A bonds were trading at an average of 150 basis points off the curve last Tuesday. He says he is uncertain as to when the spread widening may happen. He argues that high-quality corporate bond spreads are tight due to a particularly difficult corporate environment given the widespread regulatory and ratings problems within the sector.

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.

Five-year credit-default protection on French telecom giant Alcatel widened roughly 30 basis points last week in thin trading, in what traders described as a defensive tone to the market. The company's default swaps widened to 455-505bps Wednesday in London, after a long holiday weekend. One trader attributed the widening to broader negative sentiment from the previous week and the fact that London trading is likely to be thin for the entire week given the Jubilee celebrations and the much-anticipated World Cup match between England and Argentina. "Everyone's just being a little defensive," he noted.

Sydney-based Tyndall Australia may start purchasing and selling default swaps for its AUD3.5 billion (USD1.9 billion) fixed-income portfolio. "It's something I'm considering," said Roger Bridges, fixed-interest portfolio manager in Sydney, noting that he is studying the product and is speaking to a number of banks. Bridges continued that the fund manager is still in the initial stage and will take some time before it would look to become a user, as it will first need to establish systems as well as receive internal approval. Bridges declined to speculate on a timeframe on when the fund manager will start trading.

Loïc Fery, Asian head of credit derivatives at Crédit Agricole Indosuez in Hong Kong, relocated to London at the end of last month to assume a new role as co-head of global credit structuring. Fery said in this new position he will structure and promote synthetic credit transactions, including collateralized debt obligations, for the European market. He will continue to manage the Asian credit derivatives operation and will look to expand the business into Japan this year. Both Fery and Benjamin Jacquard, co-head of global credit structuring, who is based in Paris, report to Jean-Michel Beacco, global head of credit in Paris, according to Fery.

Sydney-based fund manager Hedge Funds of Australia, with AUD75 million (USD41.7 million) under management, is considering launching an onshore hedge fund next year that will look to use over-the-counter derivatives. "It's still the early days," said Spencer Young, managing director, noting that HFA is still in the planning stages. However, the firm is considering bringing an in-house managed fund to Australian investors. Young continued that such a fund would likely use OTC products, such as equity derivatives, but noted that it was too early to comment about specific products or strategies it would employ. A tentatively scheduled start date is the first quarter of 2003, noted Young.

Colonial First State Investments, the fund management arm of Commonwealth Bank of Australia, is looking to write credit-default swap protection on global names for its AUD1.2 billion (USD689 million) diversified credit fund. "It's an access and pricing issue," said Tony Adams, senior portfolio manager of credit funds in Sydney. "We'll use default swaps when they're cheaper than the physicals," he added.

Credit Suisse First Boston has hired Rick Selvala, an equity derivatives marketer from UBS Warburg, to sell over-the-counter products to retail and corporate clients, according to Michael Crooks, managing director and head of hedging and monetization at CSFB in New York. Selvala started at CSFB a couple of weeks ago. "This is a way to bolster our sales force," Crooks said, adding the hire is an indirect replacement for Amy Yamamoto, an equity derivatives marketer who resigned from CSFB earlier this year (DW, 3/2). Crooks said CSFB will make new hires on an opportunistic basis, declining to be more specific.

Deutsche Bank is growing its fixed-income derivatives marketing team as it expands into the mortgage and agency cash markets. The bank has hired Stephen Rye as an agency derivatives marketer in New York from Morgan Stanley, and plans to announce more hires soon, according to a spokesman. Rye will report to Tim Dowling, co-head of capital markets in the Americas. Dowling handles the derivatives portion of capital markets, the spokesman explained. Dowling referred calls to the spokesman and Rye was unavailable for comment.

Dresdner Kleinwort Wasserstein has hired a pair of marketers from JPMorgan in Tokyo for its global debt division. Mitsuhide Shigihara, v.p. in fixed-income derivatives marketing, has joined as a director and Satoru Komaya, v.p. in credit marketing, has joined in a similar role. Shigihara said he will focus on marketing structured interest-rate and foreign exchange derivatives to Japanese firms, such as securities houses, while Komaya said he will target insurance companies and trust banks for products including private placement issuances and medium-term notes. Komaya continued that he will also start offering credit derivatives.

There are four generic forms of rated synthetic collateralized debt obligations: (1) Balance Sheet Static Synthetic CDOs, (2) Managed Static Synthetic CDOs, (3) Balance Sheet Variable Synthetic CDOs and (4) Managed Variable Synthetic CDOs. This article describes the structure of each synthetic CDO, highlights some of the features that an investor may prefer with respect to each and describes some of the documentation issues that may arise when structuring each type of CDO.