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Hungary will look to securitise a portion of its student loans later this year, according to the managing director of the Hungarian government's debt management agency (AKK), Laszlo Buzas. The country has been planning such a scheme for several years. The technique is well-suited to this sector, which is driven by government initiatives requiring ready and immediate sources of capital - an opportunity that banks can find hard to exploit.

One of Europe's largest issuers in the asset backed market came under fire this week as rating agency Standard & Poor's questioned the Republic of Italy's use of securitisation and placed the country's credit on negative outlook. The rating action, threatening Italy's double-A credit rating, coincides awkwardly with the republic's planned three year dollar global issue, which was to be priced this week. According to a London sovereign banker Italian foreign currency bonds widened by 1bp-2bp on news of the rating action, despite the very remote probability of a downgrade.

Federal-Mogul ticked up from the mid-to-low 60s into the 67 1/2 to 68 1/2 range with more than $20 million in trades this week. The paper climbed after the Official Committee of Unsecured Creditors and the Official Committee of Asbestos Claimants filed a motion to terminate Federal-Mogul's exclusive right to file a plan of reorganization. "Serious negotiations are going on," said Michael Lynch, Federal Mogul cfo. "It's a sign that the process is proceeding," he added, declining to comment further citing the private nature of the negotiations. The hearing to discuss this motion will be held on Jan. 29.

Five-year credit-default swap spreads on U.K. grocer Safeway tightened substantially as news of an accepted takeover bid from Wm Morrison Supermarket hit the market. Mid-market swaps narrowed to 50-60 basis points on Thursday from 80-95bps earlier in the week. Traders said volumes spiked approximately to three times typical levels of two to three trades per day. The rest of the retail sector took a hit last week, however, with many announcing poor December sales. Five-year mid-market protection on Dixons Group widened to 100bps Wednesday from 80bps earlier in the week as it announced a profit warning. The news had a knock-on effect as protection on retailer Kingfisher widened to 90bps/105bps from 75bps/90bps and German retailer METRO Group to 130bps from 115bps.

Rentenbank, a Germany agency which finances agricultural projects, has entered an interest rate swap to convert a recent EUR100 million (USD104.76 million) offering into a synthetic floating-rate liability. In the swap, Rentenbank is receiving the 4.125% fixed-rate coupon on the bond and paying a Euribor-based rate. A treasury official in Frankfurt said it is the agency's policy to keep borrowing costs Euribor-based to match its lending portfolio. Barclays Capital is the counterparty on the swap and was chosen because it was the underwriter on the bond. Rentenbank requires derivatives counterparties to have a minimum rating of single A.

American Express Bank has hired Albert Chang, a principal business specialist in sales at Integral, a software vendor in New York, as a director to build up its foreign exchange options trading and marketing operation. Part of this process may include further hiring, Chang said. He reports to Matt Porio, global head of fx spot and options in London and New York. Before working for Integral, Chang traded options at Rayner & Stonington, a Greenwich-based hedge fund.

Melbourne-based National Australia Bank, one of Australia's largest banks, is looking to issue two or three synthetic collateralized debt obligations in Australia this year as well as structure a wider array of credit products on the back of growing client interest. "We think there's growing demand for a full range of tranches," said one official.

Citigroup bought USD500 million to USD1 billion (notional) in one-year dollar calls/yen puts struck at JPY135 at the beginning of last week. One-year volatility only jumped to 10.5% from 10.4% as the trades went through first in Asia and then Europe. The Street is bearish on the dollar, so there was a ready supply of options sellers, traders said. Spot was trading at JPY120.43 Tuesday. Steven Reiter, head of fx options at Citigroup in London, did not return calls.

BNP Paribas is bringing aboard Dong Lee, a marketer at LG Securities America in New York, as an equity derivatives marketer in Hong Kong. Laurent De Meyere, Asian head of equity derivatives in Hong Kong, said Lee will cover the Korean market and has been hired to build up the business. Lee is a replacement for Hong Shik Kim, who joined Good Morning Shinhan Securities in Seoul as managing director and head of fixed income and proprietary trading (DW, 7/28). Lee will report to De Meyere and starts in the coming weeks.

European synthetic collateralized debt obligation volumes rocketed last year, while the number of cash flow deals remained, at best, flat. "What I thought might take five or six years happened in two years. The speed surprised me," exclaimed Ebo Coleman, v.p. and senior credit officer at Moody's Investors Service in London. End-of-year figures obtained by DW, due to be published by the rating agencies in the coming weeks, show the number of synthetic CDOs increasing up to three fold, whereas cash flow deals have either stagnated or fallen. Standard & Poor's rated 60 synthetic CDOs and 21 cash flow deals in 2002 versus 17 synthetic and 24 cash flow CDOs in 2001. Moody's Investors Service rated 158 synthetic deals in 2002 compared with 107 synthetic CDOs the previous year. It rated 26 cash CDOs in both years. Standard & Poor's figures only include public transactions, so the proportion of synthetic CDOs is likely to be even higher as more private deals are synthetic.

Deutsche Bank has introduced its first two equity-linked notes in the U.S. and is planning to launch a slew more, one every two weeks. Karen Fang, v.p. in the structured products, global equities division in New York, said the new issues extend the firm's global structured products reach to U.S. investors, with similar products being already available in Europe and Asia. While the first two notes give participation in the Standard & Poor's 500 index, other indices, including the NASDAQ-100 and Russell 2000 will also be used in future products, she added.

PaR Asset Management is setting up a non-trend rule based foreign exchange hedge fund. The asset manager is waiting for Financial Services Authority approval, but expects to receive its license and start trading in March for managed accounts and will launch a hedge fund within six months, according to Chris Attfield, senior investment officer in London. Attfield's co-founder is Mel Mayne, ceo. Mayne and Attfield met when Mayne was the head of the dealing room at First Chicago, now Bank One, where Attfield was a strategic analyst at the firm.