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FleetBoston Financial is preparing to issue a USD1 billion collateralized debt obligation, according to DW sister publication BondWeek. It began marketing the transaction last week, said a sell-side banker and analysts who note the deal is being issued to tap strong demand for CDOs backed by senior secured corporate debt, which investors find attractive these days because they provide an extra layer of protection in an uncertain economic climate. On the flip side, CDOs of straight corporate debt have practically disappeared from the new issue market, with just one being sold all year, according to Elizabeth Russotto, a senior director at Fitch Ratings, who was not involved with the deal.

JPMorgan and Deutsche Bank are considering structuring options on hedge fund indices in the coming weeks. Deutsche Bank will likely reference derivatives to the Hedge Fund Research (HFRX) index and market sources say JPMorgan is looking at Standard & Poor's or Morgan Stanley Capital International indices.

Humana, a publicly traded health care provider, has entered an interest rate swap to convert a USD300 million fixed-rate bond into a synthetic floater. Walter Stark, assistant treasurer in Louisville, Ky., said the corporate entered the swap to hedge its interest rate exposure.

Many derivatives professionals will immediately call a forward contract a delta one trade. That's because they believe that a forward sale position can always be perfectly hedged by buying the same amount of the underlying asset at the spot price and vice versa. This is also known as a static hedge because once it is executed it does not have to be altered for the duration of the contract.

Hedge funds are licking their wounds after swaption implied volatility rocketed catching most off guard. The funds had entered strangles after the U.S. interest rate cut in June wrongly predicting vol would be low during the summer. The volatility of three month options to enter five year swaps, for example, leaped from 7.7 basis points per day on June 25 to as high as 10.8 bps per day on August 1, noted one trader. Longer dated options have also seen sharp increases, with the price of one-year options to enter five-year swaps rising from 8.1bps per day to 9.75bps per day in the same period. Vol has come off a little since this peak, he added.

Craig James, a senior equity derivatives trader at Merrill Lynch in New York, has quit the firm. James, who could not be reached, is not thought to have joined a competitor, said a official familiar with his departure. At Merrill, James reported to Val Mihan, managing director, who declined comment.

Many credit derivatives traders were caught be surprise last week when five-year credit protection on biotechnology corporate Monsanto Co. exploded to 96 basis points last Wednesday from 40bps where it had traded only two days before. While Monsanto is known to have problems, particularly its ongoing litigation with its former chemicals division Solutia, this fact has been well known for a while and does not explain such a huge, sudden shift, noted one New York-based trader. Protection on Monsanto gapped out following a stampede of protection buying on the name, as though suddenly exposed players had a delayed reaction or the need to protect themselves, said another trader.

Scott Kerson, former head of commodity marketing for the Americas at Deutsche Bank in New York, has joined Merrill Lynch to head its energy marketing effort. Kerson is working on Merrill's newly minted oil and gas trading operation and reports to Kuljinder Chase, head of the firm's energy trading business. Both Kerson and Chase referred calls to the press office. Michael DuVally, spokesman in New York, declined comment.

Credit-default swap spreads on European telecom companies widened last week as investors took profit on their positions. Protection on France Telecom widened to 90/95 basis points on Thursday from 73bps the previous week, according to a trader. The move drove in spreads across the board by around 5bps, noted the trader.

"Now when we see an opportunity we can react more quickly."--Darren Smith, co-head of CDOs at Dresdner Kleinwort Wasserstein in London, commenting on why the firm set up a joint venture with its trading desk. For complete story, click here.

Trafigura Group, a privately owned commodity trading company headquartered in Lucerne, Switzerland is beefing up its energy derivatives trading desk and has hired Chris Jamieson, head of oil trading at EDF Trading, to lead the effort. Jamieson declined to comment.