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Robeco Alternative Investments has linked an eight-year Rabobank bond to the performance of Transtrend, a commodity trading advisor. Edwin Noomen, v.p. in Rotterdam, said "This offers investors the opportunity to invest in a CTA with a principal guarantee."

The dollar's depreciation against the euro to record lows last week has sparked a pick up in year end trading volumes in foreign exchange options. The move was sparked by exotic option market makers wanting to hedge their positions as many knock-out euro calls expire this month.

Demand for derivatives wrapped as mutual funds surged this year, but bankers are struggling to understand how instrumental a pending change in European regulations is to the sector's success. Originally bankers thought Undertaking for Collective Investments in Transferable Securities III would open up the European Union markets to funds structured with derivatives, but it appears the rules it will be more restrictive than bankers had hoped.

FirstGroup, a U.K. transport company, has entered interest rate and currency swaps on a GBP250 million (USD441 million) note to convert it into a dollar liability. "The fundamentals of the sterling bond market offered good value on relative terms to the company" said Ian Weldon, group treasurer in Aberdeen. Weldon declined to detail what FirstGroup pays and receives in the swap.

A large number of U.S. commodity desks were caught out trying to unwind short positions by the recent dramatic spike in natural gas prices, said dealers, and a hedge fund run by former Enron star trader John Arnold was rumored to be one of the biggest losers. Arnold, principal at Centaurus Energy in Houston, declined to confirm or deny the reports, noting that the firm does not comment on specific positions or its profit and loss account. "We are having a fantastic year," he said, adding that Centaurus is still the leading market maker in fixed price natural gas swaps. Indeed, rival traders said Centaurus is widely believed to have been up in excess of USD100 million prior to the rally, and therefore may still end the year with a net positive performance.

Meridian Investment Managers plans to add up to $15 million in callable agencies, with an aim to pick up income as interest rates are expected to rise over the next six to 12 months.

Avoca Capital, a buy-side firm that recently issued its debut collateralized debt obligation in the European market, is looking to add some expertise.

Banc One Capital Markets has hired Roger Gordon, a former head of high-yield research at Goldman Sachs, to spearhead its growing high-yield research effort.

Calvert Asset Management is putting new cash to work in investment-grade corporate bonds and taking on a defensive posture as the year draws to a close.

A deceleration in downgrades, low interest rates, an improving economic and financial environment and declining corporate spreads helped fuel a positive year in high-grade corporate bonds.

AXA Investment Management's London-based sterling team is looking to buy corporate bonds that offer relative value as spreads continue to register extremely tight levels.