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BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

AIG Trading Group has hired Behnouche Mostachfi, head of foreign exchange options at Commerzbank Securities in London, and Damian Zihlmann, senior market maker at Commerzbank in London, as senior fx options traders in London. Mostachfi and Zihlmann report to Donald Lee, global head of fx options and head of foreign exchange in Greenwich, Conn., said Beth Cutler, spokeswoman in Greenwich. Cutler declined comment on whether Mostachfi and Zihlmann were additions to the team or had replaced staffers who had departed. Lee, Mostachfi and Zihlmann referred questions to Cutler.

Credit market participants often follow stock prices to get some direction on credit-default swap pricing. Although there is extensive research on swap pricing, it is hard to find explicit examples of how to compute a simple relationship between the two. There are two popular approaches to modeling credit risky instruments, the structural approach and the reduced-form approach. The structural approach treats corporate liabilities as contingent claims on the issuer's assets. Assuming a simple capital structure composed of one zero-coupon bond and a layer of equity, an event of default occurs when the firm's asset value falls below the face value of the zero-coupon bond at maturity. Equity is equivalent to a call option on the assets of the firm, whose strike is equal to the face value of the debt.

The African Development Bank has entered an interest rate swap on a recent CHF300 million (USD226.1 million) bond to convert it into a floating rate liability. Thiebaut Julin, manager of the capital markets division in Paris, said the agency always enters interest rate swaps on its fixed-rate debt offerings because it has a policy to maintain floating-rate liability exposure. In the swap, ADB pays LIBOR minus a spread and receives the 1.5% coupon on the bond. The tenure of the swap matches the bond's five-year maturity, Julin noted.

Barclays Capital has hired Ed Somekh, senior managing director and marketer at Bear Stearns in New York, for a senior derivatives role. Linda Wynns, spokeswoman at Barclays in New York, confirmed the hire, but declined further comment.

Seoul-based Korea First Bank, with assets totaling over USD32.2 billion, plans to set up an interest rate derivatives trading book in the second half of this year. Jin Hang Lee, treasurer, said while the bank currently offers interest rate derivatives to its clients, these are hedged back-to-back transactions, and it wants to establish a proprietary book to trade swaps and options. "We'll start with simple swaps at first and then move to the next level," said Lee. He expects the board of directors to rubber stamp the plans by the second quarter. The existing trading team will handle the duties but Lee said as the operation grows he will consider adding more traders.

Citigroup has combined its emerging markets credit derivatives operations, which have traditionally operated separately within the group's corporate and investment bank and Citigroup International. Sumit Roy, global head of credit derivatives in New York, will head the new group in addition to his existing responsibilities. There will not be other management changes, according to Roy. Citigroup International is a separate division within Citigroup, which works across all products areas on a global basis.

AXA Investment Managers is planning to structure its first emerging market collateralized debt obligation in the coming months. The CDO, dubbed Symphony in continuation of a musical theme started with its Jazz transaction last year, is likely to be a hybrid synthetic and cash deal of around USD300 million, according to an official familiar with the transaction. The European asset manager has teamed up with Morgan Stanley to structure the 12-year deal. Officials at Morgan Stanley and AXA Investment Managers declined comment.

Derivatives houses, reportedly including Citibank, Deutsche Bank and BNP Paribas, have built up millions of dollars of mark-to-market losses on cross-currency interest rate swap positions in Korea. The value of the positions plummeted after the spread between cross-currency interest rate swaps and domestic swaps widened because Moody's Investors Service downgraded its outlook on the sovereign's A3 rating. One head of swaps at a U.S. firm in Seoul estimated most foreign firms have suffered mark-to-market losses of USD3-10 million in the last few weeks. Richard Tesvich, spokesman at Citibank, Anastasia Chye, spokeswoman at Deutsche Bank, and Virginie Ourceyre, spokeswoman at BNP Paribas, declined comment on the swap positions.

One-week euro/dollar implied volatility shot to 11.7% Thursday morning from 10.1%-10.6% Monday as traders bought euro puts/dollar calls. Traders said a slew of trades were executed at strikes of USD1.09 as well as a yard of options struck at USD1.0875 that traded on Wednesday. The bulk of the options were bought when spot was between USD1.10-1.15.

Neil Mason, European head of interest rate trading at Bank of America in London, resigned from the firm last week. Rob Kitchen and Larry Weithers, interest rate swap traders in London, also left the bank. Reasons for the departures could not be determined by press time. A spokewoman at BofA declined comment.