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Morgan Stanley has issued its first three single-tranche mezzanine notes referenced to Synthetic TRACERS, its U.S. 100-name credit-default swap index. Matthew Zola, managing director and co-head of structured credit products in New York, said the structures were traded as a means of promoting flow in the index. In a generally low spread, low interest rate environment, investors are looking for ways to hit their yield targets and relative to other instruments such as corporate bonds, structured mezzanine tranches look attractive, he noted.

Credit portfolio managers are increasingly executing risk management strategies which generate income as well as reduce risk. Robin Lenna, head of credit capital management at FleetBoston Financial in Boston, said risk managers are embracing a wider range of strategies, including capital arbitrage and exchanging risk with similar entities to diversify their portfolios (DW, 2/10).

One-month implied volatility on the Mexican peso/dollar cross leaped to 11.5% last Wednesday, a percentage-point jump on the previous day. The increase came as the Cete, Mexico's benchmark 28-day Treasury bill, fell to one of its lowest yeilds. This prompted many to pull money out of local fixed income and reinvest either in local equities or get out of the country altogether all of which puts pressure on the peso, noted the trader. As Mexico's currency dived through key technical levels the currency also saw profit taking which further encouraged investors to leave the market, he added.

Credit-default swap spreads on DaimlerChrysler blew out last week after news hit the market late Tuesday that the U.S. arm would suffer a second-quarter loss of USD1 billion. Although the Chrysler Group said it planned to cut a further USD1 billion of costs to allow it to report an operating profit for the year, bond investors were upset that this information was not disclosed before a USD2.5 billion bond issue was marketed, traders said. As a result, the bond deal was relaunched and is expected to price with a higher coupon.

* Merrill Lynch's Christopher Mehan, co-head of credit products and corporate risk management in New York, falsely raised attendees' hopes by promising to open his presentation with a joke. He later backed down, saying there was no upside. "If you tell a bad joke, you tell a bad joke [but] if you tell a good one, people remember that and not your presentation," he quipped.

The 10 U.S. banks that will be required to adopt the second Basel Capital Adequacy Accord need to focus more energy in developing their internal credit ratings systems. Zahra El-Mekkawy, v.p. at the Federal Reserve Bank of New York, said some key areas of firms' internal ratings systems need more work, despite the strong progress already made.

"Like all marriages, however, the trade suffers from the difficulty of finding a good partner."--Robin Lenna, head of credit capital management at FleetBoston Financial in Boston, commenting on the trials and tribulations of arranging a perfect risk swap. For complete story, click here.

JPMorgan, Morgan Stanley and BNP Paribas expect to start trading TRACX, their European index of credit-default swaps, early this week. The product, which was originally scheduled for release last month was put on hold while the International Swaps and Derivatives Association finalized the 2003 credit derivatives definitions. Clients will be able to buy and sell protection in funded and unfunded forms, according to an official familiar with the index.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.

BondWeek is the leading news publication for fixed-income professionals, covering new deals, structures, asset-backed securities, industry and market activity.