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Waddell & Reed is buying euro-dollar bonds on the view that the euro is oversold and will recover in the next several months, according to portfolio manager Jim Cusser. Cusser, who manages some $800 million for the firm, bought into the recent Freddie Mac reference note euro-dollar tranche, buying some eight to $10 million worth of the 4.50% of '04 (Aaa/AAA). Financing this with a sale of shorter maturity CMOs, he reasons that the non-callable structure, coupled with the euro's current valuation of $0.93, will offer an excellent total return. He notes that although the paper has backed up slightly to yield 4.65%, with a Federal Reserve inclined to ease, the curve will steepen and paper will trade inside 4%.

Legg Mason Investment Advisors will sell agencies to buy $180 million in corporates and $100 million in mortgages-backed securities late in the third quarter, or fourth quarter, as the economy begins to improve. Mitchell Penn, who manages $2.7 billion for the Baltimore-based firm, believes that inventories have built up and as consumers begin purchasing again, manufacturers will begin producing. This, in conjunction with easing by the Federal Reserve, will lead to an upturn.

In a relative value play, Westwood Management Corp has been selling agencies to add another 8% in high-grade corporates in the financial and auto sectors, and upped its allocation of Yankee bonds by about 7%. Mark Freeman, who manages $500 million for the Dallas-based firm, characterizes the nearly completed strategy as a defensive one prompted by spread tightening. He is buying single-A or better corporates, and recently bought Citigroup's 4% notes of '05 (A2/A) and GMAC's 4% notes of '05. Freeman, who is overweight Yankees by about 2%, is diversifying out of the U.S. as growth slows. He especially likes European sovereigns, particularly Italy. The country has made headway with its deficit reduction and gross domestic product numbers recently came in higher than expected.

AMR Investment Services has been adding corporates on the view that MBS and ABS are currently oversold due to concerns about pre-payment risks, according to Bonnie Mitra and Pat Sporl, senior portfolio managers. Mitra, who manages a $100 million fixed-income portfolio for the Dallas firm, is trying to increase his corporate allocation by five to six percent by selling ABS and MBS. Using some of the proceeds from this reallocation, AMR recently bought into the five-year financial sector, including Wells-Fargo (Aa2/A+) and Citigroup (Aa2/AA-), both of which were offering yields of 100 basis points over Treasuries. In addition, they added some 10-year automobile paper from Ford Motor Company (A2/A) and some 30-year paper from General Motors (A2/A), both of which were yielding nearly 200 basis points over comparable Treasuries.

Deutsche Bank has reportedly agreed in principle to pay up on a disputed credit default swap in which it provided protection to UBS on a company that designs and manufactures floors and ceilings. An official close to the situation said UBS will dismiss a lawsuit it brought against Deutsche Bank for failure to pay in the swap after what it thought was the reference company filed for chapter 11 bankruptcy protection last year. Terms of the settlement could not be determined by press time, the official said, noting that neither party has yet signed on the dotted line. Spokespersons at Deutsche Bank and UBS declined to comment.

Christine Cromarty, director, agency asset swap marketing at BMO Nesbitt Burns in New York, and Amy Cohen, senior marketer for corporate and emerging market names at creditex in New York, have taken new positions at Banca Commerciale Italiana. Both are directors, with Cromarty marketing and structuring credit derivatives and Cohen trading and marketing. The positions were added in line with a global increase in the BCI structured credit platform, said Paolo Josca, head of credit derivatives in New York.

Matt Milsom, managing director and head of trading for Europe and Asia, has become the latest high-profile derivatives professional to leave J.P. Morgan Chase. Milsom, who came from Chase Manhattan, was offered Asian-based positions following that firm's merger with J.P. Morgan. He resigned at the beginning of the month because he did not want to move to Asia and because positions on offer in Europe were not sufficiently senior, according to an official familiar with the matter. Milsom declined comment.

CDC Ixis Capital Markets is restructuring its credit group to include exotic credit derivatives, such as first-to-default baskets of credit derivatives, and has spun off flow business into a separate group. Francois Mainard, deputy head of global fixed income in Paris, said the restructuring is designed to capture a bigger piece of the burgeoning European credit derivatives market. CDC opted to split the roles because it wants specialists for each department, he added.

Enron plans to begin trading financial derivatives on computer memory out of its London office in the near future. Steve Elliot, president of Enron Broadband Services Europe, said the energy and commodity trading giant presently only trades data capacity out of Houston, but plans to hire a professional to launch its European effort.

The state Treasury of Bundesland Sachsen-Anhalt, a state in Eastern Germany, is set to enter a EUR100 million (notional) interest-rate swaption if one-year futures on 10-year German Bunds trade above 109% of their issue price in the secondary market. It will use the swaption to hedge interest-rate risk on a EUR100 million bond the German regional authority plans to issue in the second half of the year. It has yet to choose counterparties for the swap, according toAxel Gühl, treasurer at Ministerium der Finanzen des Landes Sachsen-Anhalt.

Adam Friedman, equity derivatives marketer at J.P. Morgan in New York, has taken the new position of managing director, equity derivatives marketing to corporates at Bear Stearns in New York. The hire was opportunistic, said Don Martocchio, senior managing director and global head of equity derivatives sales in New York, adding that Bear Stearns has been look to up headcount in this area for some time. Friedman, who reports to Martocchio, is a senior member of an existing team of corporate equity derivatives marketers.