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One yard of one-year yen puts/dollar calls went through the London foreign exchange market last week. The options had strikes of JPY135-150 with one-year maturities, according to European-based traders and brokers. Proprietary traders were likely buying the options to hedge against a surprise tumble in the yen against the dollar, according to traders. The yen was trading at approximately JPY115 when these trades went through. David Bloom, foreign exchange strategist at HSBC in London, said if Japan decides to let its currency depreciate against the greenback in order to bring about an export-led economic recovery, then the JPY135 level could be reached. But with the U.S. facing its own growth problems, the U.S. may look to boost its exports and hence resist such a low exchange rate. HSBC's six-month forecast for the dollar is JPY107.

London-based traders bought euro calls/dollar puts with strikes at parity last week. The buying spree was initiated by dollar spot falling against the euro because of lower-than-expected National Association of Purchasing Management manufacturing survey figures published on Tuesday. The options had maturities of one-three months. The notional sizes were between USD20-50 million. One-month implied volatility stayed high amid the rise in spot, rising to 14.7/15% on Wednesday from 13.7%/14.1% the previous Friday. The lower-than-expected data led vol to rise, but traders added that some increase in vol was to be expected anyway. With the new year, players no longer fear time decay from holding options over the holiday season, and there is hence pent-up demand for options, which would lead to vol increasing. Spot rose from USD0.9305 on Friday to USD0.9460 on Wednesday.

London-based traders bought euro calls/dollar puts with strikes at parity last week. The buying spree was initiated by dollar spot falling against the euro because of lower-than-expected National Association of Purchasing Management manufacturing survey figures published on Tuesday. The options had maturities of one-three months. The notional sizes were between USD20-50 million. One-month implied volatility stayed high amid the rise in spot, rising to 14.7/15% on Wednesday from 13.7%/14.1% the previous Friday. The lower-than-expected data led vol to rise, but traders added that some increase in vol was to be expected anyway. With the new year, players no longer fear time decay from holding options over the holiday season, and there is hence pent-up demand for options, which would lead to vol increasing. Spot rose from USD0.9305 on Friday to USD0.9460 on Wednesday.

J.P. Morgan Chase is assembling a collateralized debt obligation with American Express Asset Management as investment manager, employing the Morgan Intermediate Collateralized Loan Obligation Securities (MINCS) structure. According to BondWeek, an LMW sister publication, market players note that this marks the first time that AmEx will serve as manager of a structured product consisting entirely of loans. In March, AmEx hired Yvonne Stevens and Lynn Hopton from SunAmerica Corporate Finance, a move that industry observers at the time said would allow AmEx to expand its in-house structured product management capabilities beyond high-yield CDOs to include loan structures. The Minneapolis-based firm has managed CDOs with high-yield collateral, as well as some with relatively low loan components, totaling some $3 billion. Calls to Stevens, Hopton and other AmEx officials were not returned by press time. Marketing on the transaction, which is expected to close in March, began late last week. The deal with AmEx would be the bank's sixth MINCS transaction. J.P. Morgan originally developed MINCS to compete with Chase Securities' Chase Secured Loan Trust (CSLT) by providing an investment-grade rating and leveraged exposure to bank loans. The MINCS structure came to be regarded by some investment managers as superior to CSLT for its greater transparency, and market players note that the relative popularity of MINCS could lead to the phasing-out of the CSLT structure. The first MINCS transaction, a $700 million deal that came to market in April 1999, was managed by TCW Asset Management. Others followed with managers including ING Capital and Pilgrim Investments.

Bank Leumi U.S.A. will seek to use new cash and some of the proceeds from matured corporate-bond holdings to purchase high-quality asset-backed bonds, including those backed by credit-card and auto-loan receivables. The strategy is aimed at safeguarding against a slowdown in consumer and investment spending that would hit corporates. Robert Giordano, a senior v.p. who manages approximately $1.5 billion in taxable-fixed income, says he considers current Treasury rates too extreme. "I think it's fear that's driving the Treasury market," he says. Giordano, who is unsure how much cash he'll put to work, says spreads on top-flight three- and five-year ABS could tighten 10-15 basis points as fixed-income investors seek a safe haven in the early part of this year. He focuses on highly-structured ABS from big-name issuers, but will buy the occasional second tranche of a deal.

Segall Bryant & Hamill is funneling new cash, $5-10 million at a time, to agencies and existing corporate positions that it feels will withstand the nearing economic slowdown. Greg Hosbein, director of some $1 billion in fixed income, cites Interpublic Group Cos. (A3/A), an ad agency that has withstood past slowdowns thanks to solid financials, and building supply giant Lowe's Companies (A3/A), which could see increased business if housing finance rates fall, as two such credits. He says higher-quality financial services firms without commercial banking exposure, such as Household International (A3/A) and GE Capital (AAA/AAA), are also attractive, because of what appears to be a healthier consumer-loan market. Hosbein declined to disclose details on other corporate credits the firm is eyeing, but says he is focusing on the five- to 10-year part of the curve, which would benefit most from an easing of the Fed funds rate.

National City Investment Management will seek to use new cash to boost its allocations to select industrial credits that suffered spread-widening last year but could rebound as the Federal Reserve eases interest rates. Andy Harding, a portfolio manager in charge of some $4 billion in taxable fixed-income in Cleveland, says he is ready to make purchases on a security-by-security basis, adding that current spread levels are attractive. Among industrials, he likes long maturities and household names such as Dow Chemical, 170 basis points over the 30-year Treasury, Ford Motor Co. at 255 over, and Wal-Mart Stores at 115 over. The right corporate sectors should outperform structured products in the next six months, says Harding, noting that in some cases there is a 100 basis-point pick-up on a quality A-rated corporate credit versus five-year credit-card ABS. "And being an ABS/MBS guy, that's pretty strong coming from me," he adds. Though he has switched to lower coupons, Harding will maintain his weighting in MBS, which he has seen hold up even in a lower-rate environment.

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.

Two $5 million pieces of Allied Waste bank debt traded last Wednesday as the name gained favor in the market and waste hauling industry in general improves. Moreover, one dealer cited a rumor in the market the company is doing a bond deal that will take out some of the bank debt. "It's a really good deal right now," he said, adding that the company is also planning to do asset sales that will result in a paydown. Thomas Ryan, cfo, said the company hasn't made any official announcements about asset sales or a bond deal. "We have existing asset transactions, which are old news, but we've made no announcements in terms of financing," he said. Dealers report that the "B/C" tranche traded at 971/8, up about 3/4 of a point, and the revolver traded at 933/4, up about one point and 1/4. "The company is performing well. People are more comfortable with the name," said a trader. Another market watcher agreed, saying simply, "The bonds are up, the name is good and obviously there's some retailing buying." A market watcher said the loan levels are following better stock levels. He said he believes Allied's levels are slightly higher than those quoted by the other dealers and said Allied is in line with the success of the industry. "Other equities in the industry have turned north. Waste Management is up. The problem the market perceived the companies to be having-such as fears that they couldn't integrate-didn't materialize," he said.

J.P. Morgan Chase is assembling a collateralized debt obligation, employing the Morgan Intermediate Collateralized Loan Obligation Securities (MINCS) structure, with American Express Asset Management as investment manager, according to J.P. Morgan Chase officials. Market players note that this marks the first time that AmEx will manage a structured product consisting entirely of loans. In March, AmEx hired Yvonne Stevens and Lynn Hopton from SunAmerica Corporate Finance, a move that industry observers at the time said would allow AmEx to expand its in-house structured product management capabilities to include loan structures. The Minneapolis-based firm has managed CDOs with high-yield collateral, as well as some with relatively low loan components, totaling some $3 billion. Calls to Stevens, Hopton and other AmEx officials were not returned by press time. Marketing on the transaction, which is expected to close in March, began late last week. The deal with AmEx would be the bank's sixth MINCS transaction. J.P. Morgan originally developed MINCS to compete with Chase Securities' Chase Secured Loan Trust (CSLT) by providing an investment-grade rating and leveraged exposure to bank loans (BW, 11/16/98). The MINCS structure came to be regarded by some investment managers as superior to CSLT for its greater transparency, and market players note that the relative popularity of MINCS could lead to the phasing-out of the CSLT structure. The first MINCS transaction, a $700 million deal that came to market in April 1999, was managed by TCW Asset Management. Others followed with managers including ING Capital and Pilgrim Investments.

Merrill Lynch has brought a throng of relationship banks into its $1.675 billion credit backing Triad Hospitals' $2.4 billion acquisition of Quorum Health Group. Bank of America, which took on half the loan, has signed on as co-lead arranger and co-book runner, as well as administrative agent. J.P. Morgan Chase and Citigroup have signed on as co-documentation agents, with each firm hauling $150 million. Senior managing agents include Credit Lyonnais, First Union, FleetBoston Financial, Bank of Nova Scotia and GE Capital, and each bank committed $125 million. UBS Warburg signed on as managing agent, kicking in $65 million. The banks all signed commitment letters before year-end this past December, according to a banker tracking the credit. General syndication has been tentatively set for early February, after the loan is rated. Triad could earn a BB rating, the banker said. Standard & Poor's affirmed the company's B+ corporate credit and bank loan rating in October last year.