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This article focuses on the relationship between spot and risk reversals. Using five reference currency pairs chosen for the liquidity of their out-of-the-money options we investigate potential causal links between spot and risk reversals. While a causal link from risk reversals to spot cannot be entirely ruled out in some instances, the relationship appears to be very weak, whereas there is strong evidence supporting a causal link from spot to risk reversals. Consequently, charts showing spot versus risk reversals should be interpreted with caution, bearing in mind that spot is the leading force.

Société Générale plans to launch covered warrants on commodities, currencies and interest rates in the U.K.'s nascent warrants market. The firm already has issued 123 covered warrants that have equities and equity indices as reference entities listed on the London Stock Exchange, but plans to expand these offerings before the end of the second quarter, according to David Lake, head of U.K. warrants in London.

Credit-default swaps on Rolls-Royce tightened briefly last week after it released its annual results, before widening as investors recognized the company's GBP1.1 pension shortfall could be a long-term problem and could lead to a ratings downgrade. On Tuesday spreads tightened to 265 basis points/280bps from 295bps/305bps, after the results, but almost immediately widened back out to 300bps/315bps. Traders said this initial tightening happened because the net debt position of the company had not grown as much as anticipated. One trader said after the results were released, volumes quadrupled. He saw about a dozen trades in one day.

KGI Securities Co., part of the KGI Group, which has USD6.5 billion in assets, is considering purchasing credit derivatives for the first time in Taiwan's newly-opened onshore credit market. "We're just starting to look at this," said Jeffery Huang, head of interest rate derivatives in Taipei.

Thai Farmers Asset Management, the asset management arm of domestic banking giant Thai Farmers Bank with assets of over THB130 billion (USD3.04 billion), is getting ready to purchase equity-linked and credit-linked notes the first time. "We think that with interest rates so low and with equity prices having more upside potential, it's a good opportunity to use leveraged products," said Yingyong Nilasena, first senior v.p. of fixed income in Bangkok. The fund has looked at using structured notes since last year (DW, 8/25) but has been held up by documentation and pricing issues, on which Nilasena declined to elaborate.

UBS Warburg is bringing aboard Haitong Wang, a marketer at Goldman Sachs in Hong Kong, to cover fixed income derivative products for China. Wang, who starts later this month, will report to Philip Tsao, managing director and joint head of the Asian debt capital markets group in Hong Kong, according to Mark Panday, spokesman at UBS. Tsao declined comment and Wang could not be reached.

UBS Warburg has hired Jeff Herlyn, managing director in managed CDO structures, and Michael Rosenberg, v.p. in managed CDO structures at JPMorgan in New York, to co-head its global CDO business. Sal Naro, managing director and co-head of global credit derivatives in Stamford, Conn., to whom the new recruits report, said the firm made the hires to expand its credit trading and structuring platforms. Neither Herlyn nor Rosenberg could be reached for comment.

National Fuel Gas, a Buffalo, N.Y.-based diversified energy company with approximately USD1.4 billion in annual revenue, is expecting to enter into its first interest rate swap in the coming months. Ronald Tanski, senior v.p. and controller, explained the utility envisages entering into a fixed-to-floating swap in response to an anticipated decline in the portion of floating rate debt in its capital structure.

"We're just starting to look at this."--Jeffery Huang, head of interest rate derivatives at KGI Securities Co. in Taipei, commenting on his firm's plans to examine credit derivatives. For complete story, click here.

United Utilities has entered a cross-currency interest rate swap on a recent JPY3 billion (USD25.4 million) bond offering and plans to tap the capital markets for GPB500 million to GBP1 billion this year, on which it will enter interest rate swaps. Tom Fallon, treasurer in Warrington, U.K., said the company always uses interest rate swaps to convert fixed-rate debt into floating rate, because it is a better liability match for its income, which is generated from regulated monopolies and is indexed to inflation.

Frankfurt-based DWS Investments is waiting for the European Central Bank to stop cutting rates before putting on a curve flattening trade. Johannes Mueller, portfolio manager responsible for a E2 billion European government bond portfolio, says he expects the yield curve to flatten once the ECB stops its rate cuts.