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Bank Leumi USA has been borrowing in the repurchase market and selling commercial paper to add $200 million to its portfolio. The trade is primarily in mortgage-backed securities such as 6.5% 15-year mortgages, five-year balloon mortgages, well-structured planned amortization class collateralized mortgage obligations and U.S. government securities. Robert Giordano, who oversees some $2.2 billion in taxable fixed income for the U.S. subsidiary of the Israeli bank, says the bank is looking to take advantage of the steep yield curve in the two- to three-year area to pick up additional yield when shorter-term rates are low. While most of the $200 million program was complete as of last Monday, Giordano was still watching the direction of the two-year Treasury bond before investing the last $37 million. With two-year Treasuries yielding 3.35% last Monday, Giordano said an additional two to three basis points of tightening would convince him to invest the remaining funds, which would consist of $20 million in MBS and $17 million in U.S. government securities.

J.P. Morgan Fleming Asset Management has been building a moderately short duration position in U.S. Treasuries in its $30 billion global fixed-income portfolio and will take profits once 10-year U.S. Treasury yields reach 5.6-5.7%. Last Tuesday, the yield on the 10-year was 5.2%. London-based Jonathan Griggs, head of macro research for global fixed-income, says the portfolio's U.S. Treasury duration is now at about 0.5 years, versus a neutral duration earlier in the year. He expects this trade to run for at least three more months. For those accounts that are run based on ex-U.S. dollar benchmarks, the firm also has been running a short duration strategy at a quarter to a half year. Griggs says the firm has been focusing on buying German and French government bonds to implement the strategy. About 5% of the portfolio has been allocated to European bonds.

In an unusual twist on the debate over analyst independence, Jamie Dimon, chairman and ceo of BANK ONE, surprised analysts last week by scolding them for being excessive about earning forecasts for next year. Surprising, because he was not talking about some dot.com or another Enron, but his own bank. According to the Financial Times he said in a conference call last week, "In general, you would have to see absolute blue skies to get those very high numbers." He added, "I would caution that when you fly that high, you can get burned."

Credit Suisse First Boston has promoted Chris Carter, head of equity trading, equity derivatives and convertible sales and trading for the Asia Pacific region in Hong Kong, to global head of equity options. Carter, who will work from the firm's New York office, replaces Maurits Schouten, who resigned about three weeks ago, according to a firm official. Carter reports to Phil Vasan and Paul Calello, co-heads of CSFB's global equity derivatives and convertibles group. Calls to Carter, Vasan and Calello were referred to CSFB spokeswoman Victoria Harmon, who declined to comment.

David Charles, head of risk management at Gen Re Securities in Tokyo, has joined Deutsche Bank's group market risk management team in London. A Deutsche Bank official in London said there is ongoing movement in and out of the group, declining to specify whether this is a new position. The group is responsible for managing all market risk across the bank's activities, of which the largest component is trading, the official added. Charles could not be reached for comment. The group is headed by Richard Evans, chief risk officer. Evans was traveling last week and could not be reached.

APS Asset Management, an asset manager in Singapore with USD500 million under management, launched its first hedge fund earlier this month. The fund will use over-the-counter equity puts and swaps. "It's a real long/short fund. We're not going to make big directional bets," said Wong Kok Hoi, cio and founder of the firm. The fund, dubbed APS Asia Pacific Hedge Fund, with USD10 million under management, will primarily focus on the cash equity market in Asia, especially Japan, Hong Kong, Singapore and Australia, but will buy puts for Korea and Taiwan. "We'll create synthetic short positions," said Wong, noting that regulations in Korea and Taiwan restrict offshore players from borrowing stocks, therefore hindering short cash equity plays. "We'll start small," noted Wong, adding that it will invest in up to USD2-3 million in OTC products.

New York-based MBIA Asset Management, a subsidiary of MBIA Inc. with over USD40 billion in assets, plans to begin investing in synthetic collateralized debt obligations for the first time, according to a market official familiar with the firm's plans. MBIA Asset Management, which has been investing in cash CDOs for several years, is considering pulling the trigger on its first investment in a synthetic CDO by the fourth quarter, the official said. "They've been taking a close look at the synthetic market for quite some time. The banks are constantly marketing their new products to them. It's only a matter of time before they make the move," another market official noted. Cliff Corso, president of MBIA Asset Management, did not return calls by press time.

United Auto Group (UAG), an auto dealer in Detroit with 123 franchises in the U.S. and 55 internationally, is considering entering an interest-rate swap on the back of a recent USD300 million bond offering or unwinding several existing interest-rate swaps to get the desired fixed to floating-rate debt ratio, said James Davidson, executive v.p. of finance.

Derivatives houses, including JPMorgan, Deutsche Bank and Goldman Sachs, have agreed to eliminate the acceleration and repudiation/moratorium triggers in European credit-default swap contracts for investment-grade corporates from today, aligning the European and U.S. markets. Demand from U.S. investors for collateralized debt obligations has driven the rating agencies to recommend a more standard contract, said lawyers and traders in London. "Part of the endeavor is to assist in creating a homogenous market so [investors] can purchase credit derivatives in either market," said Habib Motani, partner and head of derivatives at Clifford Chance.

Bank of America has added a layer of management in an effort to revitalize its troubled Japanese credit derivatives business. "There was a false start," said William Fall, global head of structured products in London and the regional head of the global markets group, referring to the establishment of a credit derivatives operation in Tokyo last year. The operation failed to take off because BofA did not have the right people for the job, he added. Fall flew into Tokyo two weeks ago for an extrodinary meeting with local managers. A derivatives professional who recently left BofA, said Fall is an exceptional market leader and will make a success of the business. In the reorganization, Kenichi Tatsuzawa, head of global markets for Japan, now reports to Fall. Previously he reported to Duncan Goldie-Morrison, head of the global markets group and responsible for the bank in Asia. Tatsuzawa was traveling and did not respond to voicemail messages on his cell phone.

Deutsche Bank is working on a new way of creating capital guaranteed products, which it plans to launch this summer and market to investors as an over-the-counter swap. At the moment most capital guaranteed products are structured using either an option and a zero-coupon bond or with constant proportion portfolio insurance (CPPI). The new method, dubbed timing invariant portfolio protection (TIPP), is an evolution of CPPI, according to Xuan Karen Fang, v.p. in structured equity products in London.

Demand for dollar/yen double-no-touch options increased last week as the currency pairing remained rangebound. Typical barriers on the trade were set at JPY130-135 with maturities of two weeks to one month, with sizes between USD5-10 million, according to one trader who saw at least 10 buyers. "The Bank of Japan drew a line in the sand," he said, regarding the goal of Japanese officials to keep the yen from appreciating. Spot was JPY129.06 Wednesday.