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Lehman Brothers is recommending clients put on a three-month euro call spread against sterling, buying a European-style call struck at GBP0.64 and selling a call struck at GBP0.6750. The net premium the investor pays on this trade was 1.5% last Wednesday. If euro/sterling is above GBP0.6750 at maturity the trade pays out over 5% of the notional. The break even level on the trade is GBP0.6497, according to Francesca Fornasari, foreign exchange strategist in London. Spot was at GBP0.6310 when the trade was recommended last week. Lehman Brothers' three-month forecast for euro/sterling is GBP0.66.

ING Barings is preparing to launch a prime brokerage desk in Hong Kong to snare business in the nascent hedge fund market in Asia. The firm is considering pulling out of the U.S. domestic prime brokerage market, but this is unrelated to the decision to set up shop in Asia, according to Martin Keller, managing director in charge of international prime brokerage in London. "This is a prerequisite to pitch for new business in Asia."

J.P. Morgan is recommending to customers a trading strategy designed to profit from the relative wideness of four-and-a-half-year swap spreads over Treasuries versus one-and-a-half-year swap spreads over Treasuries. The gap between one-and-a-half-year swap spreads and four-and-a-half-year swap spreads is about 32 basis points, said Terry Belton, head of North American derivatives strategy in Chicago.

Asiana Airlines, South Korea's second largest airline, is set to launch a long-delayed interest-rate hedging program this year now that improved ticket sales suggest that finding counterparties will prove easier. C.S. Han, general manager, finance department in Seoul, said Asiana had planned for some time to reenter the interest-rate swap market to hedge 45% of its USD1.4 billion foreign currency floating-rate loan portfolio, but found attracting counterparties difficult because of its double-B long-term rating (DW, 7/17). At the end of November though it re-entered the market for the first time since the Asian financial crisis, paying fixed in a USD200 million (notional) swap.

Munder Capital Management is trying to swap out of agencies and add single-A or better corporate bonds, increasing the firms corporate bond allocation by 5-10%, but it is having a hard time identifying the credits. "Because demand for corporates is strong, it is hard to find the name we like in the size we want," says Peter Root, the Birmingham, Mich.-based chief investment officer who oversees $5.5 billion in fixed income. It is focusing on swapping out of 30-year Treasury bonds and into 30-year corporate paper, an area it had been underweight last year, because the spread between agencies to corporates is wide. "Corporate spreads are wide to the interest rate swap market, and agencies stay close to swaps, so the relationship is a bit out of line," says Root.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Wilbanks, Smith & Thomas Asset Management is looking to add four- to five-year corporates at the low end of the investment-grade spectrum, potentially boosting corporate allocation by about $14 million, from 23% to 28% of its $275 taxable fixed-income portfolio. "We're making a bet that the economy bottoms out in June," says Wayne Wilbanks, cio. He expects the Federal Reserve to cut rates at its January and February meetings, helping companies such as DaimlerChrysler and General Motors Acceptance Corp. to post higher profits. Wilbanks notes that despite the automakers' ability to still deliver earnings-per-share of $2-3 in 2002, Daimler's five-year paper currently trades at about 220 basis points over Treasuries and GMAC's four-year is at 185 over.

Murray Johnstone International is adding Japanese and euro-denominated government bonds on the view that the economic slowdown in the U.S. has not been fully discounted, and that these bond yields will reach their 1998 lows. "There is still a strong correlation between global bond markets, so as the U.S. yields drop it will take the other country's yields lower as well," says Rod Davidson, who manages $750 million in taxable fixed income. Davidson will bring his Japanese government bonds to neutral from 4% underweight, and will add 8% to his European government paper by selling his sterling-denominated long bonds because he considers them too rich, with the U.K. currency overvalued versus the euro. On the view that yields will be dropping all along the curve, he has been adding duration, recently purchasing the German 6.5% of '27 Bunds.

Buysiders say they are still feeling the effects from the consolidation on the sell-side, such as the recent mega-mergers of Donaldson, Lufkin & Jenrette with Credit Suisse First Boston and Chase Securities with J.P. Morgan, on accessibility to market information and liquidity. They have lost leverage with the sellside as a direct result of consolidations, says Mike Dineen, portfolio manager at the MONY Group in New York, and liquidity has also been effected. "I used to have more control over which firm I could reward, depending on who gave me better service. Now they are all just the same sellside," says Dineen. "It's almost like they've become commoditized," says another buysider.

A spate of trades came in the cable sector last week as dealers noted the industry's insulation from economic swings. There were several trades for Charter Communications and Adelphia Communications last week. A $4 million piece of Adelphia's "B/C" paper traded at 995Ž 8, while Charter "B" tranche traded at 995Ž 8, traders said. Both are up slightly from the 99 range. "Cable names are all stronger; it's counter cyclical," said one. "The industry is not dependent on the economy. Even in a downturn, people still keep their cable, while people may not be getting a new car." Another dealer agreed, jokingly remarking that cable television is one of the last things to go as the economy nosedives. "Cable is usually the last thing to go--that and beer," he said. Adelphia, based in Coudersport, Penn., services five million customers. Charter is a St. Louis-Mo. Company with a little more than six million customers.

Moody's Investors Service assigned a provisional rating of (P)Ba3 to the proposed $275 million senior secured credit facility of Chesapeake Energy Corporation. The rating also came out in conjunction with an upgrade on the company's senior implied rating to B1 from B2 and an upgrade on its $31 million cumulative convertible preferred stock to Caa from Ca. The anticipation of a decrease in debt during 2001 from free cash flow bolstered by up-cycle price hedges prompted the positive outlook from Moody's.