Free content

Steven Reiter, formerly head of short-term interest-rate options at Citibank in New York, has relocated to London as head of global foreign exchange options. Reiter replaces Jack Jeffrey, who left Citibank earlier this year to become London-based chief executive of The EBS Partnership, an electronic fx trading platform owned by a consortium of 12 banks. Also trading places is Anders Henrikson, former head of fx options at Citibank in New York, who left the bank a few weeks ago to join the corporate treasury department at Nokia in Geneva, according to Citibank fx officials. Reiter has been replaced internally as head of short-term interest-rate options by Bill Kelly in New York. Kelly and Jeffrey did not return calls.

Derivatives houses in India, including Deutsche Bank and JPMorgan, have held informal talks with the Reserve Bank of India with hopes to launch interest-rate options. "There's a need for these products," said Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai. He added that the regulator could allow them in six to 12 months. Srinivasan Varadarajan, treasurer at JPMorgan in Mumbai, agreed that the options could be introduced next year. Investors would likely use the options to reduce hedging costs with caps, floors and swaptions. Baruah noted that a year or two after the products launch, the market could rival the current size of the interest-rate swap market. Varadarajan estimated the swaps market to be USD40-50 million per day, but said that had doubled over the last month as investors convert their bond holdings to floating notes.

As traders anticipated euro/dollar spot would climb to parity or higher and implied volatility reached approximately 12.9% last week, foreign exchange strategists were recommending knockouts to various users of fx options. On Wednesday, when spot was trading at USD0.99, Lehman Brothers was recommending a switching-knockout trade, primarily for speculators, which consists of a one-month euro call struck at USD0.995, where the knockout is at USD1.0250 for the first two weeks and at USD0.975 in the following two weeks. The end user benefits in this trade if the euro does not trade at or above 1.0250 in the first two weeks and does not trade at or below USD0.975 in the following two weeks. It is based on the view that euro/dollar spot will first enter a consolidation phase before re-entering its upward trend, saidEric Ohayon, head of fx structuring at Lehman. The upfront premium for this trade is 60 basis points over the reference spot rate, compared with a one-month euro call at USD0.995, priced at 125bps over that rate, he said.

Husky Energy, Canada's second-largest oil and gas company in terms of production, has entered into three interest-rate swaps to convert a fixed-rate obligation into synthetic floating-rate liabilities. Mike D'Aguiar, treasurer in Calgary, Alberta, said the company entered three separate USD50 million swaps in which it receives the 6.25% coupon it owes on a recent bond and pays an average of six-month LIBOR plus 88 basis points. The swaps match the 10-year duration of a USD400 million bond Husky issued earlier this month.

James Neill, foreign exchange strategist at Bank of America, has left the firm. A spokeswoman confirmed his departure, but declined further comment. Neill was no longer at BofA last week and could not be reached for comment.

Credit-default protection on Hewlett-Packard widened more than 40% last week on the heels of a mammoth USD1.5 billion offering the technology company issued, according to traders. Five-year default-swap spreads widened roughly 40 basis points during the week, with mid-market protection jumping to roughly 130 basis points by late Wednesday from 90bps on Monday. The bond offering was increased to USD1.5 billion. "Their existing debt was fairly minimal and then these new bonds came and pushed out default protection quite a bit," said one trader in New York. He said there did not appear to be any credit-related reason for the higher cost of protection and attributed it solely to the technical factor.

Goldman Sachs has created a standalone derivatives marketing group, called the European corporates team, to market interest-rate, foreign exchange and credit derivatives as well as general financing instruments, such as bonds and loans, to corporates. The firm formed this group to provide corporates with a single point of contact, according to Rebecca Nelson, a spokeswoman in London. Although it is only implementing this strategy in Europe, if it is successful the firm would consider replicating it in the U.S. and Asia, a Goldman official said.

"Surely we would be interested."-- Jitendra Jain, fund manager at Reliance Capital Asset Management in Mumbai, explaining that he would use interest-rate options if the Reserve Bank of India permits them. For complete story, click here.

Kuala Lumpur-based Aims Asset Management, with USD130 million under management, is considering investing in equity-linked notes in the coming months. "Right now we're trying to weather the storm," said David Watt, managing director, referring to the current slide in equity prices. He said if it makes the jump it would likely be sometime in the next six to 12 months, the decision will depend on the risk return profile of the notes. Watt noted that equity-linked notes could provide an enhanced yield over traditional investments such as cash equity. The equity-linked notes would be referenced to Asian rather than global stocks, said Watt.

Merrill Lynch is looking to build up is credit derivatives structuring effort in Tokyo on the back of growing investor demand, according to market officials. One official said Merrill is looking to hire a credit structurer as well as a marketer who will focus on CDOs. The new hires will probably report to Taro Masuyama, head of credit derivatives structuring in Tokyo, who declined comment.