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Five-year credit protection on U.S. communications giants, including cable TV operator Comcast and Cox Communications, moved in by around 100 basis points last week, as the market experienced a renewed appetite for credit. Five-year default swaps on Comcast narrowed to 390 basis points last Wednesday, in from 515bps the previous week.

The Federal Reserve Bank of New York invited more than 60 representatives from the largest credit derivatives houses in the U.S., including Ambac Assurance Corp, Bank of America, Citibank and JPMorgan, to its Liberty Street offices for the first time on Oct. 24 as part of a review of whether banks need restructuring protection to get regulatory capital relief. Darryll Hendricks, senior v.p. at the Fed in New York, said the regulator has to take account of market implications in developing policy and is actively considering its stance on restructuring and capital relief, including its position on what should be included in the proposed Basel capital adequacy accord. However, he added that the main purpose of the meeting was to understand what is going on in credit derivatives, rather than to discuss regulatory proposals.

Agence Française de Développement, France's principal project aid agency for lending to developing countries, has entered an interest rate swap to convert a recent EUR500 million (USD493 million) bond into a floating-rate liability. In the swap, the agency receives the 4.75% coupon on the bond and pays a spread over six-month Euribor. Gregory Clement, funding manager in Paris, said the agency typically uses interest rate swaps to convert its fixed-rate debt into floating-rate to match its lending portfolio. The agency also uses interest rate swaps to alter the duration of its debt.

Interest rate swap traders and analysts are predicting European swap spreads could tighten further by year end, with Deutsche Bank going as far as saying that 30-year swaps could trade tighter than the 30-year German Bund within the next six to 12 months. Swap spreads are at their tightest level for a year, with the 10-year swap spread trading at 20.5 basis points over the German Bund, in from 28bps at the beginning of October and the five-year tightening to 25.5bps from 31.5bps within the same period. Strategists said the main reason for the predictions is anticipation of massive long-term bond issuance from sovereigns due to looming budget deficits. Although this would initially affect the long-end of the curve, swap rates are usually correlated so the whole curve should tighten. Another reason for tightening is unwinding of long asset swap trades, where investors are long cash bonds and are paying swaps.

Equity derivatives players in Hong Kong are up in arms about upcoming financial regulatory changes because they could hinder liquidity in the over-the-counter market and be expensive to implement. "[The Securities and Futures Commission is] really trying to clamp down on market manipulation, but this could drive away liquidity," said Ali Ahmed, head of equity derivatives trading at ABN AMRO in Hong Kong.

The International Swaps and Derivatives Association has released its fifth and final draft of the 2002 master agreement and is asking its members for comments by Nov. 11. Kimberly Summe, general counsel at ISDA in New York, said in an e-mail to ISDA members that the group would circulate a pre-publication draft at the end of November and publish the new agreement by year end.

The International Swaps and Derivatives Association is planning to unveil the final draft of the 2002 equity derivatives definitions within the next week, with the intention to seek comments by Nov. 15 and publish the final document before year-end.

The Toa Reinsurance Co., one of Japan's largest reinsurers with over JPY455.2 billion (USD3.64 billion) in assets, has stepped up its examination of the synthetic collateralized debt obligation arena with an eye to investing in a deal next year. Ohura Kazuhido, manager in the investment department in Tokyo, said the department is currently planning next year's investment strategy for its USD700 million portfolio and is considering synthetic CDOs to enhance yield. "It's possible we'll invest within six months," he added. The department, which invests in a wide array of products from Japanese government bonds to weather derivatives, has looked at CDOs before, (DW, 12/8) but is patiently studying the product rather than making a plunge, said Kazuhido. "We're conservative."

Kookmin Credit Card Co., one of Korea's largest card issuers with over USD10.4 billion in assets, is finalizing the details for a cross-currency interest rate swap on the back of a USD500 million credit card securitization. James Lee, an associate in the treasury department at Kookmin in Seoul, said the entire issuance, made up of five-year floating rate dollar-denominated notes, will be converted into fixed won within two weeks. "We're still in the middle of negotiating the [International Swaps and Derivatives Association Master Agreement]," he added. ING Bank, the structurer for the ABS deal, will be the counterparty for the swap. He declined to comment on target rates.

The London branch of the Korea Development Bank plans to hire a treasurer, who will explore using credit derivatives to buy protection and take exposure. David Afcroft, head of securities trading in London, said part of the new treasurer's responsibility will be to examine credit derivatives. "A new treasurer, with experience, would presumably look to take on exposure as he sees fit, not necessarily massive exposure, but [it] would increase our opportunities." The firm does not plan to make markets in credit derivatives from its London office. The firm's Seoul headquarters already uses credit derivatives.

Nomura Advisory Services Malaysia is considering structuring the first ringgit-denominated synthetic collateralized debt obligations in Malaysia, the first of which could hit the market next year. "This is something that we'd definitely like to develop," said Steve Clayton, managing director and head of debt capital markets and investment banking in Kuala Lumpur. The move follows the beginnings of a cash CDO market earlier this year.