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Five-year protection on Bank of America fell from 79bps in the beginning of December to 70bps (with restructuring) early last week. Bank of America announced early last week it had met reduced earnings expectations for the fourth quarter. It also priced USD3 billion 10-year, fixed rate subordinated note, which was well received in the market, giving protection sellers more confidence in the name. BofA and other financials widened last month as they reduced earnings expectations and players feared a slowing economy would influence the ability of borrowers to pay down loans.

Market makers expect highly rated corporates to flood into the credit derivatives market as both end users and market makers if the proposed Basel Capital Adequacy Accord comes into effect.

Bank of America plans to hire credit derivatives traders, structures and marketers for its London office. Paul van der Maas, managing director and head of structured credit products and emerging market structured products for Europe in London, said the bank wants to hire six individuals to support its growing credit derivatives, emerging market structured products and collateralized debt obligation business.

ProFunds, a mutual fund manager with some USD2 billion under management, is today launching a group of index funds that will use over-the-counter equity derivatives. The funds are expected to bring in USD2 billion in the next six months, said Michael Sapir, chairman and ceo at ProFund Advisors in Bethesda, Md.

Dollar/yen one-month implied volatility jumped to 13.4% on Wednesday from 11.25% the previous Friday after the dollar appreciated to JPY118 and traders purchased dollar calls.

German cooperative DG Bank is considering using credit derivatives to structure two EUR100 million (USD94.5 million) synthetic collateralized debt obligations. It hasn't ruled out buying the underlying bonds in the cash market, but probably will use credit default swaps because the spreads are more attractive, says Detlef Giebe, head of corporate and bank bonds trading in Frankfurt.

Guaranteed products on baskets of hedge funds are set to be the dernier cri as demand for hedge fund products rises. Mehraj Matto, co-head of fund derivatives at BNP Paribas in London, estimated the market could increase four fold over the next year. Investors are keen for the products because the level of returns in equity was disappointing last year and hedge funds can offer better returns. Guaranteed products open up hedge funds to a number of players that could not otherwise access them, such as some pension funds.

The Alexandra Global Investment Fund has entered an asset swap on the back of a convertible bond it recently purchased. The manager bought USD5 million of three-year Hutchinson Whampoa bonds, exchangeable into shares of Vodafone Group. It then essentially stripped out the embedded equity option and sold the bond to a special purpose vehicle, said Mikhail Filimonov, managing partner at Alexandra Investment Management, the investment advisor for the fund in New York. It sold the bonds at a value such that they could be swapped into synthetic floaters paying LIBOR plus 165 basis points.

Lion Capital Group plans to launch a long/short equity hedge fund that will use over-the-counter derivatives. Markus Jordi-da Costa, managing partner in Zurich, said the fund will use calls, puts and basket options when it launches in February. It will typically use derivatives to short a stock or a basket of stocks. For example, if it thinks the share price of a sector of stocks is going to fall it will buy a put on a basket of stocks in that sector.

Lehman Brothers is pitching to clients basket equity option trades designed to profit from sectors expected to outperform and under perform the Standard & Poor's 500 when the index has bottomed out but the economy is not in recession. Paul Lieberman, v.p.-equity derivatives and quantitative research at Lehman in New York, said sectors including investment banks/brokerage houses, airlines, and networking technology stocks have since 1962 tended to perform well in the six months following non-recession related S&P 500 lows. Conversely, sectors such as gold and precious metals, and engineering and construction typically under perform under these conditions.

HSBC has hired seven equity derivatives sales professionals in the last two weeks: four in private banking and three covering institutional investors. HSBC now has seven sales professionals covering equity derivatives for private banking clients.