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Credit-default protection on bulge bracket firm JPMorgan Chase widened as much as 20 basis points last week, after the second-largest U.S. bank warned that third-quarter earnings would lag second-quarter results because of weaker-than-expected trading profits and bad loans. Five-year default swaps were trading at 95 basis points Wednesday, up from 75-80bps before the announcement, according to traders. Volume was very high, with one trader at a large U.S. dealer reporting he had done USD60 million in JPMorgan trades on Wednesday alone, compared to a daily average of USD5-10 million.

HSBC recently hired Ernest Yip, interest rate derivatives trader at JPMorgan in Hong Kong, as a government bond trader on its fixed-income trading desk. Yip is a replacement for Sean Wan, bond trader, who recently left the firm, according to Justin Chan, head of Hong Kong dollar interest rate and derivatives trading at HSBC in Hong Kong. Wan could not be reached for comment.

Lehman Brothers has started to offer perfect asset swaps and began marketing them over the summer to European investors. A perfect asset swap is used to remove an investor's interest rate and currency risk even if a bond defaults, whereas a cross-currency asset swap only protects investors if the asset never defaults, explained Dominic O'Kane, head of Lehman's European quantitative credit research group in London. O'Kane said Lehman has seen a lot of client interest in Europe for these types of swaps as credit spreads are wider in the U.S. and there is potential for investors to buy dollar-denominated U.S. names.

The outstanding notional value of credit-default swaps has grown by 31% in the first six months of the year, while the combined interest rate and currency swaps market has grown 14%, according to an ISDA mid-year flash survey.

Macroeconomic risks are among the most important risks to the incomes of firms and individuals. For financial market participants as well, views on the distribution of possible economic outcomes are critical for asset allocation decisions and risk management. The last 12 months has highlighted the influence of economic data in shaping these views, as investors have struggled to interpret the trajectory of the global economy.

"We are getting significantly more money, more subordination and a larger role in selecting the names."--Michael Schozer, managing director in structured finance and credit derivatives at Ambac Assurance Corp. in New York, commenting on the impact of confusion over the restructuring definition and Financial Security Assurance pulling back from the CDO market. For complete story, click here.

The South Carolina Public Service Authority, one of the largest U.S. state-owned utilities with USD2.2 billion in debt, may enter its debut interest rate swap on the back of a recent multi-tranche USD440 million debt offering. Although there is not a natural need to convert the debt to a floating-rate liability, as the new fixed-rate bonds were sold to refinance more expensive outstanding fixed-rate bonds, according to Rod Murchinson, treasurer in Moncks Corners, S.C., the utility would consider executing its first interest rate swap because of the potential for interest rates to fluctuate during the life of the bond, part of which has an 18-year maturity.

Intrawest Corp., a sub investment-grade developer and operator of ski resorts across North America with annual revenue of almost USD1 billion, is considering using over-the-counter derivatives to mitigate foreign exchange and interest rate risk related to a USD137 million bond deal it sold earlier this month. Dan Jarvis, executive v.p. and cfo in Vancouver, British Columbia, said the company is "in the throes" of examining whether to enter fx options, interest rate swaps or a cross-currency interest rate swap.

U.S. dollar/yen risk reversals fell sharply last week, tracking the spot market as the dollar rose to its highest level in months against its far eastern counterpart. Twenty-five delta risk reversals had plummeted to 0.55 vol in favor of yen calls/dollar puts by Wednesday in New York, from 1.2 vol for yen calls/dollar puts a week before. Spot moved from JPY121.70 Monday to as high as JPY123.40, it later settled at JPY121.60 late Wednesday after the Bank of Japan said it would buy stocks from its ailing banking system.

This article examines the impact of removing restructuring as a trigger event in the credit-default swap contract. It concludes that removing restructuring would be constructive and lead to greater market liquidity. It would likely shave off 10-20% of the premium. However, it is looks at alternatives for market participants who need restructuring.

UBS Warburg is considering setting up a fixed-income derivatives operation in Taiwan as the local asset-backed securities and structured bond market increases. Philip Tsao, managing director and joint head of the Asian debt capital markets group in Hong Kong, said, "A decision should be made by early next year."

Yorkshire Building Society has entered a foreign exchange swap to convert its first euro-denominated issue into sterling. Chris Parrish, group treasurer in Bradford, U.K., said the exchange rate for conversion of the EUR500 million (USD484.65 million) bond offering was set on Sept. 11 at the forward exchange rate for Sept. 26, when the offering will settle. That rate was approximately EUR0.6275. Yorkshire Building Society needs to convert its funding into sterling because its lending portfolio is denominated in sterling, Parrish added.