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Credit Suisse First Bostonhas denied a widespread rumor that it has been offloading large unsold collateralized debt obligation positions in the secondary market. CSFB has been a net buyer of CDOs in the secondary market, according to Kristofer Kraus, director in CDO trading in New York. He added that CSFB continues to issue CDO paper in the primary market, which would be difficult to achieve from a risk management perspective if it were holding large undistributed positions.

The annual general meeting was dominated by issues surrounding the credit derivatives market. "This was the year of credit," said Robert McWilliam, head of counterparty exposure management at ABN AMRO in London, adding, "whether it was on collateral, non-performing loans in Japan, CLO transfers or credit derivatives, credit-related issues came up in nearly every session."

Credit protection on British American Tobacco blew out last week in reaction to a widening of default swaps spreads on Philip Morris U.S.A. the week before. Traders said five-year mid-market credit protection on BAT widened to 190 basis points last Monday from 130-140bps the previous Friday. Although spreads tightened slightly to 160-180bps midweek, the default swaps were trading at 190bps again by Thursday. Philip Morris default swaps spreads jumped to around 620bps at the end of March from 300bps earlier that week, traders said. Philip Morris protection was trading at 500bps Thursday.

Derivatives powerhouses UBS Warburg and Deutsche Bank are setting up desks in Europe to structure derivatives wrapped as mutual funds. "[These products] are one of the most rapidly growing...within the asset management business and is therefore a new market that derivatives firms are now looking to tap," said Johan Groothaert, global head of structured products sales and origination at Deutsche Bank in London. Deutsche Bank plans to work on the products with DWS Investments, its asset management sister company with EUR115 billion (USD124.07 billion) in total mutual funds under management.

DWS Investments has entered an innovative derivative structure to offer European investors capital protected exposure to global equity markets. In the structure, DWS buys cash bonds and converts the coupons to a floating rate. It then uses that floating rate to pay an option premium to Deutsche Bank in which it receives capital guaranteed participation in the equity index, according to Benedict Peeters, director in the structured products origination team at Deutsche Bank in London.

Prominent derivative houses in Asia, including JPMorgan, Credit Suisse First Boston and UBS Warburg have implemented drastic measures to safeguard their staff against the deadly SARS virus. "Our firm has instituted an internal quarantine procedure for folks coming in from the SARS high-risk regions," said one trader at JPMorgan, noting that staff traveling in afflicted regions are required to stay away from the office for one week and that business travel to visit clients in the region has been discouraged. CSFB recently split its Hong Kong equity derivatives desk, moving some of the staffers to Sydney. UBS has also quarantined traveling staff.

One-month euro/dollar option volatility fell to 10.2% last Wednesday after having traded as high as 10.8% late the previous week. Concern over how the U.S. advance into Baghdad would play out triggered foreign exchange player's fears leading into the weekend of April 5. The nervousness lifted last Monday and vol was subsequently pushed down to 10.5%, according to a New York-based trader. The euro traded at USD1.07 last Wednesday, unchanged from the week before.

Yannis Matsis, managing director and global head of credit derivatives at ING in London, resigned from the firm last week. He reported to Lau Veldink, global head of trading and sales for investment-grade fixed-income products. Veldink and Matsis declined comment.

Landesbank Hessen-Thüringen (Helaba) has entered an interest rate swap on a recent USD500 million bond offering to convert it into a floating-rate liability. The firm is keeping the proceeds in dollars to match dollar assets, according to a firm official.

Equalt, the alternative asset management arm of Crédit Agricole Indosuez with EUR650 million (USD695 million) of assets under management, plans to launch a capital structure arbitrage hedge fund. The fund will use over-the-counter derivatives, including credit-default swaps, according to Pierre Valentine, cio for all of the firm's quantitative strategies in Paris. The asset manager's plans for the capital structure fund are still in the early stages, but he said it is likely to launched by year-end.

Jim Fowler, senior foreign exchange options trader at AIG Trading Group in New York, has quit the firm. Donald Lee, senior v.p. and global head of fx options and head of foreign exchange in Greenwich, Conn., to whom Fowler reported, declined comment. Fowler could not be reached.