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Convertible bonds are a perfect halfway house between debt and equity - giving issuers a versatile instrument that can fulfil any number of corporate finance objectives and investors a product with unique risk/return characteristics. Investors will evaluate convertibles very differently depending on their individual investment criteria, but downside protection with the right to participate in equity appreciation is a basic starting point for the product's appeal.

Matt Milsom, managing director and head of trading for Europe and Asia, has become the latest high-profile derivatives professional to leave J.P. Morgan Chase. Milsom, who came from Chase Manhattan, was offered Asian-based positions following that firm's merger with J.P. Morgan. He resigned at the beginning of the month because he did not want to move to Asia and because positions on offer in Europe were not sufficiently senior, according to an official familiar with the matter. Milsom declined comment.

A $5 million piece of Adelphia Communications' bank debt traded up to 99 7/8. Nextel Communications bids are down slightly to 99 1/2 on the "D" paper and par 1/4 on the "B/C" tranche. Allied Waste is quoted at 98 1/4.

Lehman Brothers and Credit Suisse First Boston are recommending clients buy long-dated swaption vol ahead of the upcoming U.S. Federal Open Markets Committee meeting. In the trade, the banks are recommending clients buy long-dated swaption straddles, whose value increases if long-dated swaption vol rises.

Pricing credit default swaps means, above all, trying to attribute a value to the various components of the underlying asset. In this case, the asset is the credit risk of a certain reference entity, or to be more precise, the reference entity's risk of triggering a credit event.

Swiss private bank Bank Leu is recommending clients sell covered calls on shares of Swiss-based food manufacturer Nestlé. Markus Pfister, head of trading in Zurich, said the strategy entails a client buying Nestlé shares and simultaneously selling an over-the-counter call option struck at CHF3,500 (USD2,137). A 12-month call option with this strike has an implied volatility of 23% and generates a premium of 10%. Clients can use the premium earned from selling the option to subsidize the cost of buying the stock. But the downside is that they limit their profit in the first year--if the share price rises above the strike level, the option is exercised.

Banks in Asia are concerned that recent regulatory changes in Indonesia could sound a death-knell for the offshore cross-currency interest-rate swap market. The central bank banned the offshore trading of the Indonesian rupiah just over a week ago, apparently in a bid to protect the currency from attacks. The impact of the move on Indian-rupiah cross-currency interest-rate swaps between offshore counterparties was unclear. Some banks began to prepare for the worst, with many believing they may have to unwind all such swaps. J.P. Morgan Chase, a major player in the offshore market, is believed to have some 4,000 outstanding contracts that stand to be affected. Officials at the bank in Jakarta declined comment.

Salomon Smith Barney has created a global interest-rate and derivatives products group to put trading under the same roof as structuring to enable the departments to leverage off each other.

The Clinton Group, a macro hedge fund based in New York, is shopping a collateralized bond obligation based on an underlying reference pool of credit default swaps and expects to come to market with the 144a deal late next month. The approximately USD500 million deal is based on a reference pool of some USD2 billion in default protection, according to officials in New York who had seen preliminary offering documentation. Officials at The Clinton Group declined comment.

Industrial gas company BOC Group is setting up a series of risk management workshops to educate its senior management about how to control risk. The workshops might open the door to the use of new products, such as weather derivatives, according to Bill Connell, director of risk management in Windlesham, U.K.

Virgin Atlantic is looking at using interest-rate and foreign exchange derivatives for the first time, and is also setting up an in-house risk management center to advise heads of departments how to control business risks. Virgin has decided to systematically manage these risks because as the airline has grown, they have become more significant, said Reiner Siebert, manager of insurance and risk management. Virgin Atlantic's revenue in 1999 was GBP1.067 billion (USD1.554 billion).