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The 54th Cannes Film Festival may have been happening down the road, but as far as some derivatives professionals were concerned the real stars were quants and academics gathering for last week's ICBI-sponsored Global Derivatives & Risk Management 2001 conference in Juan Les Pins, France. "I am here because of the number of celebrities," gushed Frank Weider, director of risk control at Dresdner Kleinwort Wasserstein in London. Among the industry luminaries gracing the conference were John Hull, professor of finance at the University of Toronto, and Emmanuel Derman, managing director, firm-wide risk at Goldman Sachs in New York.

RenaissanceRe is setting up a weather derivatives desk to complement its catastrophe risk management departments. Michael Cash, v.p. in Hamilton, Bermuda, expects the reinsurance company to be actively trading weather products by year-end. He added, "the best way to learn is to get your hands dirty."

Tulip Holdings, a start-up trading company based in Atlanta, is moving ahead with plans to offer listed and over-the-counter derivatives on the seating capacity of airlines. John Lancaster, president, said Tulip Holdings entered in March a joint venture with a company that builds online derivatives markets, declining to name the company. Tulip plans to offer swaps, futures, forwards and options by the middle of next year. Tulip started preparing the move last year (DW, 12/18/00).

Equity derivatives traders in Hong Kong and Japan are prepping index arb trades to take advantage of a rebalancing of the Hang Seng Index, which is set to occur June 1. While some of the trades are filtering through the over-the-counter market, most of action has been in exchange-traded instruments, such as warrants.

Spreads on three-year credit default protection on Verizon Communications widened last week after the telecommunications giant sold USD3 billion in convertible bonds. Before the zero-coupon, 20-year issue Wednesday, default swap levels on New York-based Verizon were at around 65/75 basis points, according to a credit derivatives trader in New York. As DW went to press on Friday, those levels had widened by about 20 bps, to around 85/95 bps. He added that convertible bond issues tend to push spreads out.

Yuan Ta Securities, a securities house in Taiwan, is talking with potential counterparties about pioneering a local market for convertible bond asset swaps.Samuel Wang, manager in Taipei, said the firm recently received a Securities and Futures Commission license to enter swaps on convertibles. The nascent convertible market could reach to TWD50-60 billion (USD1.5-1.8 billion) and this likely would fuel substantial demand for swaps. Officials at the SFC could not be reached.

Predicting a 5-5.5% unemployment rate by year-end, Furman Selz Capital Management plans to sell 5-8% of his (or $80-130 million) two- to three-year government bonds exposure and buy in the seven- to ten-year range, according to portfolio manager Alan Segars. Segars, who helps manage the firms $1.6 billion fixed-income account, is doing this to increase the duration of its portfolio from 3.7-3.8 to about 4.0 years. He expects the Federal Reserve Board to cut another 50 basis points at its meeting tomorrow, and eventually take rates under 4% before year-end. "There's typically a lag between a fall-off in consumer confidence and a fall-off in consumption...As initial claims rise and unemployment goes up, people will start altering their buying plans." Segars' accounts are benchmarked against the Lehman Brothers Intermediate Government Corporate Bond Index.

The Kansas City Life Insurance Company in Kansas City, Missouri, is looking to add up to $50 million in healthcare debt. Scott Stone, head of the firm's $2.2 billion taxable fixed income portfolio, says congressional cutbacks to Medicare over the last three years bankrupted several healthcare providers, but the survivors of the cuts have come back stronger. That, combined with an aging baby-boomer population, makes healthcare look like a promising sector, and he'll be looking to buy high-rated junk to investment grade debt. Stone declines to discuss specific companies or credits, and says that his sector shifts are typically no more than a few million dollars in size. He declined to specify what would trigger his move, or why it will be bigger than previous reallocations.

Loomis Sayles & Company is planning on rotating $200-400 million from investment-grade corporate bonds into MBS to capture the next big spread product move, says portfolio manager Curt Mitchell. He is waiting for single-A corporate 10-year swap spreads to tighten from 80 basis points off treasuries to the 70 basis point level before firing up the move.

The Deal Roll-off Chart, provided by Capital DATA Loanware, lists the 50 largest leveraged credit facilities in the U.S. market that are due to mature in the coming month. It is designed to provide a look at potentially available money in the market as credits are renewed or retired.

The economy's response to both fiscal and monetary stimulus will lead to a rebound in equities and a backup in bond yields, making this a good time to play cyclical credits, argues Dan Portanova, portfolio manager with GroupAMA Asset Management. Portanova, manager of the firm's $700 million fixed-income account, employing a "get in early" style of investing, has recently participated in the Lehman Brothers Holdings and Morgan Stanley Dean Witter bond offerings. He bought the Lehman Brothers 6 1/4% notes of '06 (A2/A) because he sees them as a pure play on the presumed rebound of the institutional trading and sales business. He bought the Morgan Stanley Dean Witter 6 3/4% notes of '11 (Aa3/AA-) not only for the strength of its institutional businesses, but its diversity of earnings streams, including advisory and asset management services.