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Two-year protection on France Telecom widened 30 basis points to 120bps last week after the telecom company launched a convertible bond offering. Five-year protection widened from 120bps before the convertible was offered to 140bps on Thursday. Some hedgers opted to use the five-year maturity because it is more liquid than the two-year. Louis Landeman, European telecom analyst at Standard & Poor's in Stockholm, said France Telecom may use some of the proceeds from the convertible to finance its acquisition of Orange from Vodafone Group. If the company does so, France Telecom's leverage will increase, leading to a potential downgrade from its current A rating. If instead it raises the funds it needs for the acquisition via an initial public offering for Orange, it will use the proceeds of the convertible to refinance existing debt, which will not increase its total debt burden.

Rheinmetal, a German-based aerospace, defense, and automobile technology company, is preparing to cut its derivatives use soon as it adopts International Accounting Standards (IAS). Matthias Schoof, head of the treasury and finance department in Munich, said it uses barrier swaptions to hedge interest-rate risk from floating-rate liabilities but fears it will have to stop this when it adopts the IAS this year.

Credit default swaps on Hutchison Whampoa traded actively early last week after its subsidiary Hutchison Whampoa International announced Feb. 2 it would issue USD1.5 billion in Yankee bonds to refinance existing debt. Five-year credit default swap pricing on the credit ballooned on the day of the announcement by 15 basis points to 145 bps, before settling in to around 133bps by Wednesday, said traders and brokers in Singapore and Tokyo. Five-year credit default swaps traded several times Feb. 2 and last Monday, at 145bps and 135bps respectively. It then traded at 131bps Thursday.

The Reserve Bank of India is expected to make a decision toward the end of the month on whether to allow derivatives brokers to charge for their services. In 1992 brokers in India were forbidden from charging commissions following a series of scandals in which brokers violated regulations and raised concerns of their manipulating the markets, saidB. Ratnam, chief executive officer at theFixed Income Money Market and Derivatives Association in Mumbai. Cash equities and foreign exchange brokers were exempted from this regulation. With derivatives markets in India heating up, players have been pushing for derivatives brokers to be exempted as well.

Brian Grover, v.p., equity derivatives sales focusing on hedge funds at J.P. Morgan in New York, has taken the new position of director, head of over-the-counter equity derivatives sales to institutional investors at Credit Suisse First Boston.

AMP Henderson Global Investors (NZ), with AUD10.5 billion (USD5.7 billion) under management, plans in the next couple of weeks to become one of the first New Zealand asset management companies to use credit derivatives. It hopes to boost returns and diversify its risk profile by selling protection on Kiwi and Australian credits, using first-to-default and credit default swaps, said Chris Wozniak, head of fixed interest in Wellington.

A group of ex-Merrill Lynch equity derivatives traders is preparing to launch a market-neutral equity derivatives hedge fund. The fund, dubbed Titan Volatility Fund, will have a net long vol bias but will not take directional bets on the market, said Steve Cohen, chief operating officer in New York. Russell Abrams is the founder of the fund, and former co-head of U.S. equity derivatives trading and convertible arb at Merrill in New York. Danny Waldron and Ragu Raghavan, both senior equity derivatives traders at Merrill, joined the fund last week. The three were unavailable for comment late last week.

Taiwan Life Insurance, with USD2 billion in assets, is preparing to use derivatives for the first time. It plans to swap fixed-rate U.S. dollar-denominated debt to fixed-rate Taiwan dollars, in its first currency swap, said Johnson Lai, head of finance in Taipei. Dropping yields on domestic debt are forcing the insurer to increase its overseas bond allocation, which will leave it with larger foreign currency exposure, Lai said.

TFS has set up a European weather derivatives brokering desk. Weather derivatives broker Jason Hall will work London hours from Stamford, Conn. for the next couple of weeks before he moves to London to run the operation from there, according to Kendall Johnson, senior v.p. in Stamford. The desk will offer heating degree-day, cooling degree-day and structured products on global names. The structured products will include cross- commodity swaps.

Traders bought two-month Australian dollar calls against the U.S. dollar last week expecting that the Australian dollar would slowly continue to appreciate. The calls were struck at USD0.56 while spot traded at USD0.55 Wednesday slightly up from USD0.5545 the week before, said a trader in Sydney. Two-month implied volatility stood with bid/offer spreads of 13.2%/13.5% Wednesday down from a mid level of 14.1% the previous week.

Volkswagen Financial Services has entered an interest-rate swap to hedge a EUR50 million (USD46.5 million) floating-rate loan taken out last week. Clement Denks, treasurer in Braunschweig, Germany, said in the three-year EUR50 million (notional) swap the financial division of the German-based car company pays a fixed rate of 4.67% and receives three-month Euribor. The interest rate on the three-year loan is a few basis points above three-month Euribor. Three-month Euribor was 4.65% on Wednesday.

First American Asset Management has doubled its inflation-indexed bond exposure, from 2% to nearly 6%, by buying over $120 million in TIPS over the past six weeks, according to portfolio manager David Steele. The trade was driven not only by concerns about inflation, but also the perceived rich valuations of Treasuries, especially at the short end of the curve. The firm plans on remaining active, at least for the time being, in the 30-year TIPS sector. Steele plans on keeping the TIPS position at least until one of two things occur: the yield on the benchmark 10-year TIP bond drops through the 3% level (it is currently 3.50%), or the two-year note yield backs up 75 basis points, to 5.42% from its current 4.67% yield.