Free content

Three members of Bank of America Securities' equity derivatives trading team in New York, along with the business manager of the trading group and two risk management system professionals, departed the firm Tuesday morning to launch a hedge fund.

Hugh Evans, managing director and co-global head of credit derivatives trading at UBS Warburg in London, left the firm last week. He reported to Robert Wolf, co-global head of fixed income in Stamford, Conn. Wolf said Sal Nero, Evan's counterpart in the U.S., has become global head and the firm will hire a European head of credit derivatives in London. He added that the firm plans to hire a further five-10 sales, structuring and trading pros in its London office this year and is committed to the business.

Bear Stearns International has hired Reza Rezaeian, convertible arbitrage and default swap trader at Enron Credit in London, as a convertible asset swaps trader. Rezaeian said credit-default swap traders previously handled convertible asset swaps and he is the first and only planned full-time hire.

BNP Paribas is planning to issue synthetic collateralized debt obligations for the first time in non-Japan Asia in the coming months on the back of growing client demand. "It's a natural evolution," said Guillaume Dieu, director and head of Asia Pacific synthetic securitization in Hong Kong. He continued that the firm will look to issue its first synthetic CDO, likely USD1 billion in size, in the next three to six months and possibly two or three additional transactions of the same size later this year.

Traditional collateralized debt obligation (CDO) investment structures may not be flexible enough to meet the objectives of all investors. CDO combination securities have arisen to address this need. Combination securities can be tailored for each investor based on the desired credit rating, minimum coupon, yield target, and capital guidelines.

Bank of America is looking to ramp up its interest-rate derivatives marketing capabilities in Hong Kong, according to Sanjay Mansabdar, principal of interest-rate trading in Hong Kong. He continued that BofA is looking to add two or three additional marketers in the coming months to the team as the business continues to grow, but was travelling and could not be reached for further comment.

Sun Life Financial Services, a life insurance company with more than USD300 billion in assets, aims to use credit derivatives for the first time by the third quarter to buy protection on its corporate bond investments. A company official said the insurer is in discussions with investment banks, including JPMorgan and Credit Suisse First Boston, about ironing out the regulatory issues involved with income tax and accounting before entering its first deal. Officials at JPMorgan and CSFB declined to comment.

CIBC World Markets has created a synthetic collateralized debt obligation group in London, according to market officials. The group, which is comprised of about seven professionals, including marketers and structures, was formed last month to meet the growing demand for synthetic products in the European market. A credit derivatives official at CIBC confirmed the bank has hired "some structured people to work on our credit platform," declining further comment.

Credit-default swap trading on Hutchison Whampoa rocketed last week on the back of demand from convertible arbitrage players and hedge funds, according to traders in Asia. "The bid has been driven up by convertible bond arbitrage players," said Loic Fery, Asian head of credit derivatives at Crédit Agricole Indosuez in Hong Kong. Fery noted that Indosuez entered several of the trades, declining to elaborate. He continued that interest was seen across the curve, in two-year, three-year and five-year. "Hutch is probably the best value for a single-A credit in Asia," added Fery. He noted that last Monday, the two-year default swap was around 125-140 basis points and tightened to 120-130bps by Wednesday.

The Republic of Cyprus is considering entering its debut interest-rate swap to convert the fixed-rate liability on a recent EUR550 million (USD480 million) bond into a floating-rate obligation. The move comes as the Mediterranean republic's proportion of fixed-rate debt rises and as it looks to become a more sophisticated risk manager in preparation for its expected European Union entry in 2004. "We are getting more into the European market and as a result are becoming more conscious of pricing and market movements and interest rates," said Leslie Manison, advisor to the Ministry of Finance in Nicosia. The republic raised EUR550 million (USD480 million) through a 10-year deal earlier this month. In the swap it will pay a floating rate and receive the 5.5% coupon on the bond.

Euro/dollar one-month implied volatility hit its lowest level in three years last week as a range-bound spot led to a continued decline in demand for options. One-month vol fell to 8.05% by Thursday from 8.75% at the start of the week, this is its lowest level since February 1999. Implied vol was roughly 10% at the start of the month. "The market's been really slow and range-bound, it's not giving any signals which way it will break," noted one options trader. Although activity was generally scattered, he said there was a sizable interest from clients buying longer-dated euro calls/dollar puts with strikes between USD0.88-USD0.92. Spot was USD0.87 Thursday. "We've seen a lot of clients covering their long dollar positions by buying euro calls for hedging" one trader said.

Default-swap spreads on France Telecom have inverted--the first time that has ever happened in the European credit derivatives market--due to demand from hedge funds seeking to buy short-dated protection to hedge credit risk on the company's short-dated convertible bonds. Mid-market three-year protection was 275 basis points Thursday, while mid-market five-year protection was 255bps according to Chris Francis, head of international credit research at Merrill Lynch. Robert McAdie, structured credit analyst at Lehman Brothers in London, added, "This is an interesting phenomenon that is really being driven by hedge funds in the market."