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Scotia Capital has issued the first exchange-listed collateralized debt obligation and has a couple more in the pipeline for the coming months. Frank Ackermann, managing director in the credit derivatives and credit investments group in London, said, "This is the first public offering of its kind and we have more in the pipeline." The firm structured--and listed on the Frankfurt Stock Exchange--a EUR1 billion (USD997 million) CDO for DZ Bank, which closed last week.

The use of credit-default swaps as a hedge for all or a portion of the credit risk embedded in a convertible bond has increased dramatically over the past few years. One reason is that convertible arbitrage funds attempt to profit by buying embedded equity options cheaper through a convertible bond than is possible by purchasing the option separately in the equity derivatives market. Thus, although arbitrage funds are typically focused on isolating the equity option's value, the repackaging of the equity option in the convertible bond gives rise to other risks inherent in bonds--such as interest rate and credit risk--that are frequently hedged.

Rabobank International is planning to set up an equity derivatives operation in Asia next year. A firm official said the desk will be in Singapore, but declined further comment. Rabo has previously traded equity derivatives out of Japan, but closed its securities operation in Tokyo two years ago.

The Federal Farm Credit Banks Funding Corporation (FFCB) has entered an interest rate swap to convert part of a recent USD1 billion fixed-rate bond into a synthetic floater. An FFCB official in Jersey City, N.J., said the swap was executed to hedge interest rate risk as well as to match the resetting nature of a significant portion of the agency's assets. He declined to specify what portion of the bond issue has been included in the swap.

TD Securities plans to bolster its U.S.-based equity derivatives team following a recent reorganization of its global derivatives business. Joseph Hegener, vice chair in New York, said the firm is in talks to hire a head of equity derivatives and double its team of four structurers and traders. TD is hiring now because it is making money in this business and the current economic climate makes it a good time to hire, Hegener said.

The cost of euro/dollar options slid to 9% last Wednesday, down from a high of 9.5% on Tuesday morning, but up from 8% the previous week. After the euro achieved parity with the greenback on Oct.31-Nov. 1, one-month implied volatility rose, noted one trader. The currency pair traded at USD0.996 last Wednesday, down from USD1.004 the day before and up from USD0.98 the preceding Wednesday.

Congratulations to Ben Lloyd at Barclays Capital and Richard Cameron at PB Capital for completing the New York City marathon on Nov. 3. But there were probably other loan market players picking 'em up and putting 'em down in the big race. Send official chip times to ppaulden@iinews.com, and the fastest runner over the 26.2 miles will receive a prize courtesy of LMW.

Mitch Stapley, portfolio manager at Fifth Third Investment, will rotate $200 million, or 5% of the firm's portfolio, from agencies into Treasuries to take advantage of the recent softening of Treasury prices generated by the rebound of the stock market. An indication of this trend, he says, is the recent increase in the 10-year Treasury yield from its 3.55% low on Oct. 9 to 4.04% last Monday. He argues that last week's Treasury auction will continue to back up the 10-year Treasury's yield as the market copes with the new supply. A trigger for his move would be when the 10-year benchmark reaches a 4.25% yield, he says.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Standard Life Investments plans to extend the risk profile of its E16 billion corporate bond portfolio. Andrew Sutherland, investment director for credit at the Edinburgh-based manager, says he will wait for signs that general market volatility has abated and stabilized before making any move. He will reinvest in triple-B rated corporate credits once a number of factors become apparent.

Bailard, Biehl & Kaiser is looking to buy short-term Ford Motor Credit debt in a bid to pick up yield and limit interest rate risk. Eric Leve, portfolio manager of some $120 million in taxable fixed-income, expected to be in the market buying the paper last week. As a trigger for the trade, he had been waiting to see stronger factory orders, which in fact proved to be down when they were released last week after Leve outlined his strategy to BW. Leve hoped stronger manufacturing numbers would indicate that the economy was turning, which he said would drive up the two- to 10-year "belly" of the Treasury curve. The Ford 6.125% notes of '03 (A3/BBB) were trading at 354 basis points over Treasuries last Monday. Leve says he might look to sell the Pfizer 5.625% notes of '06 (Aaa/AAA), which were trading at just 56 basis points over the curve. Leve expects to buy $2.5 million overall in Ford and possibly other triple-B names in two- to five-year maturities, trading out of higher-rated names to pick up yield and maintain low duration.