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Investors in Asia are following Europe's trend and swapping 100% capital protection for more leverage. "Clients are looking for more upside exposure," said Kurt Ersoy, head of marketing for the equity derivatives and convertibles unit at Credit Suisse First Boston, in Hong Kong.

BlackHawk Capital Management will start selling credit default swaps for its USD40.7 million investment-grade corporate bond long/short fund. Doug Penick, managing director at the Iowa City-based firm, said it expects to start trading default swaps in the first quarter.

JPMorgan has established a credit and equity joint venture in Tokyo to offer hybrid structured products. The group will sit within the equity division and Clark Pitts, co-head of equities at JPMorgan in Japan, will spearhead the effort. Pitts declined comment.Mika Watanabe, spokeswoman in Tokyo, confirmed the initiative and said, "There is intense client appetite for more complex products that does not always sit tidily in one product area." He declined further comment.

Seoul-based Daehan Fire & Marine Insurance, with over USD700 million in assets, is considering using credit and equity derivatives for the first time. Sei Young Park, manager of the investment department, noted that it expects the equity market to lose some steam after this year's gains and will look at boosting yield via such products as equity-linked notes and credit derivatives next year. "We'll look at reallocating our portfolio then and possibly increase our bond holdings as well as use derivatives," said Park. Daehan has already put structured derivatives, such as credit-linked notes and synthetic collateralized debt obligations, under the microscope this year (DW, 4/6), but the strong performance in the domestic stock market means the insurer wanted to remain overweight in equities.

The Philippines foreign exchange derivatives market is trickling back onshore after the central bank responded to derivatives houses lobbying and lifted restrictions it had imposed earlier this year. "Customers are coming back onshore," said John McGowan, treasurer at HSBC in Makati City. "Given the cost implications, it makes sense to move back onshore, though it may take some time," he added.

"We'll look at reallocating our portfolio then and possibly increase our bond holdings as well as use derivatives."--Sei Young Park, manager of the investment department at Daehan Fire & Marine Insurance in Seoul, commenting on the firm's plans to use derivatives for the first time. For complete story, click here.

Five-year credit-default protection on Parmalat, an Italian dairy producer, blew last week on the back of Standard & Poor's decision to put the corporate's BBB minus rating on negative CreditWatch on Tuesday before coming someway back after it sorted out its investment portfolio. S&P's decision caused spreads to widen as far as 640 basis points on Tuesday from 350bps the day before, according to a London-based trader.

A Standard & Poor's collateralized debt obligation conference last week divulged two revelations about recovery rates in CDOs, something that bankers and investors have started to look at more closely since the rating agencies published data showing how much they can vary between deals (DW, 12/9). The conference disclosed innovations in both securitizing recovery rates and their relationship with the trading prices of defaulted assets.

S&P held its Annual Global CDO Conference in New York last Tuesday. Several hundred CDO professionals met to discuss the latest developments and innovations. Karen Brettell, senior reporter, attended.

Derivatives professionals are predicting the onshore interest rate options market in India will get the green light within six months. Srinivasan Varadarajan, treasurer at JPMorgan in Mumbai, said the instruments will likely get the go-ahead before the second quarter of next year after the nascent interest rate swap market matures further. A trader at Bank of America pinpointed the timing to likely be at the Reserve Bank of India's credit policy meeting in April. Alpana Killawala, spokeswoman at the RBI in Mumbai, did not return calls.

In spite of continued interest in bringing to market synthetic collateralized debt obligations referencing municipal bonds, the challenge of transferring the underlying tax benefits to structured deals continues to hold up issuance. Vandana Sharma, director at Standard & Poor's in New York, said interest in muni structures has evolved from preliminary discussions to now evaluating specific pools of assets and undertaking tranching exercises with specific structurers. In spite of this the asset continues to be in a developmental stage due to the problem posed in preserving the tax-exempt status of the cash flow from such securitizations, she said.

Newcastle Building Society has entered a swap to structure its first guaranteed mixed asset bond, which gives participation in interest rates, the FTSE 100 and the Halifax house price index. Leslie Pape, treasurer in Newcastle-Upon-Tyne, said this is the first time it has combined exposure to both equities and house prices.