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Negotiations over the payee tax representations to be made in an ISDA Master Agreement are often confusing, acrimonious and slow. U.S. negotiators, at the urging of expensive tax counsel, often insist that their foreign counterparties make comprehensive tax representations for U.S. tax purposes and deliver certain IRS tax forms to them. Typically, foreign counterparties resist making these representations because they don't understand the purposes behind them. However, these payee tax representations, and the related delivery of tax forms, serve important purposes.

Five-year credit default swap spreads on Sony widened to 20 basis points/30bps last week from 20bps/23bps three weeks ago, due in part to the company having to recall defective cell phones. Stephane Delacote, head of credit derivatives at BNP Paribas in Tokyo, said three and five-year protection traded and there was also "aggressive bidding" in the 10-year contract.

Phoenix Investments has rotated 5% of its portfolio, or $100 million, out of high yield into mainly Treasuries, says David Albrycht, portfolio manager with the Hartford, Conn.-based asset management firm. The move was done to hedge some risky positions while balancing duration.

AMR Investment Services plans to add a total of $100 million in investment-grade corporates and mortgage-backed securities over the next three months in anticipation of further steepening in the Treasury yield curve. Patrick Sporl, a portfolio manager of $1 billion in intermediate-term taxable fixed-income, says he will sell U.S. Treasuries and agencies all along the curve to maintain his neutral duration to the 4.5-year Lehman Brothers aggregate index. His strategy is based on the assumption that the curve will steepen another 75 basis points between the two- and 10-year sectors by year-end. As of last Monday, there was 125 basis points of daylight between those poles. Sporl believes the Federal Reserve will ease another 50 basis points by year-end, and the overall economy will begin a turnaround as earlier cuts begin to take effect, sending long-term rates higher.

Up-front fees for institutional tranches declined slightly to an average of 3.0 basis points per one million dollars committed for June 2001, while pro rata tranches also dipped from an average 3.9 basis points to 3.6 basis points between May 2001 and June 2001 for a rolling three-month period. According to Portfolio Management Data, fees on pro rata tranches for the three months ending June 2000 were an average 2.7 basis points while institutional fees were an average 2.2 basis points for the same period.

Highmark Capital Management will swap 10% of its portfolio, or $200 million, from agencies into corporates and ABS, while shortening the duration, on the view that the yield curve will be steeper by year-end. Dick Grahman, portfolio manager with the San Francisco-based firm, says the economy will start to look brighter toward the end of the year, and an inflation premium will begin to be built into bond yields. The curve will steepen because, as the Federal Reserve holds down the short end, the long end will start to move up. He plans to deploy this strategy up to the end of the year, when he thinks rates may begin to move back up again. It may take a year and a half to two years before rates are high enough to buy back agency bonds, so he considers the trade a long-term shift in strategy.

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.

Italy's IntesaBCI plans to become a market maker in weather derivatives as part of an expansion into high-margin capital market products. Richard Turrin, director of structured products in New York, said it is setting up the department as part of a wider expansion into alternative investments, structured reinsurance products and tax derivatives.

Italian investment bank MPS Finance is pricing a EUR352 million (USD300 million) hybrid collaterialized debt obligation referenced partly to banca poploare di spoleto's loan portfolio. Giacomo Corsini, head of sales at MPS Finance in Siena, said spoleto's loan portfolio was diversified using credit default swaps to make it more attractive to investors and now 46% of it consists of credit default swaps. He added the 10-year deal will hit the market Monday.

BNP Paribas Asset Management plans to launch several funds on baskets of hedge funds over the next two years and set up between 5-10 hedge funds covering everything from weather derivatives to merger arbitrage.Jean Dominjon, global head of alternative and quantitative asset management in London, said the move is part of a plan to quadruple assets under management in alternative investments over the next five years to EUR40 billion (USD33.9 billion). Most of the funds will use OTC derivatives, he added.

ABN AMRO is in the market to hire credit derivatives professionals to replace Fabrice Haddad, a credit derivatives trader who recently joined Gen Re Securities in London, and as a response to increased customer flows. Graham Bird, managing director and global head of derivatives at ABN AMRO in London, said the firm's plain-vanilla and structured credit trading business has grown as more end-users and investors have come into the market.