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Hedge funds have tripled their share of the credit derivatives market in the last two years, according to a draft of the British Bankers' Association's 2002 survey of the credit derivatives market, a copy of which was obtained by DW. In addition, banks, which made up nearly two-thirds of the market at the end of 1999, now only account for half and are predicted to total a mere 47% in 2004. The survey was conducted in London, but looked at firms' global portfolios. Officials at BBA declined comment.

HSBC has issued a USD1 billion synthetic CDO referenced to a portfolio of investment-grade corporate credits. Rick Ziwot, managing director and head of structured credit products at HSBC in New York, said the CDO, dubbed the Tranched Investment Grade Enhanced Return Securities or TIGERS transaction, was split into six tranches.

JPMorgan has reorganized the flow products desk within its risk transformation group to give it a global focus. Stephen Stonberg, managing director and head of European credit derivatives marketing in London, and Andrew Palmer, managing director and head of U.S. credit derivatives marketing in New York, will each continue to run the risk transformation groups regionally, but Stonberg will be responsible for funded flow products globally and Palmer will be responsible for unfunded flow products globally, Stonberg said.

Hypovereinsbank, which manages approximately E6 billion in government bonds and pfandbriefes, will add new government bonds on the view that increased issuance of two- to five-year bonds will lead to a flattening of the yield curve. Christian Schablitzki, head of HVB's bond trading unit, says governments affected by recent floods will have to raise cash on the debt markets.

Tastes Great, Less Filling ... Food euphemisms abound in the loan market, where deals are "sweetened" and investors are often characterized as hungry and even "licking their chops." Indeed, investors scarfed down food deals not so long ago. But one banker, lamenting the efforts expended in trying to sell new deals to a picky buyside audience, sounded more like a weary waiter. "It's like feeding someone with a full stomach," he said. Maybe just a thin mint, sir?

Mellon Bank auctioned off roughly $100 million of Adelphia Communications subsidiary bank debt last Thursday, as the workout process drags on. The Pittsburgh-based bank sold roughly $15 million of the cable company's Frontier Vision facility in the 86 range, $60 million of its Century-TCI facility around 85, and $25 million of the Century Cable revolver in the 68-69 context. It could not be determined whether the sales covered all of Mellon's Adelphia exposure. Mellon Bank officials declined to comment and a spokesperson did not return calls by press time. Christopher Dunstan, Adelphia treasurer and cfo, could not be reached by press time and a spokesperson did not return calls.

Chandler Asset Management will look to extend the duration of its portfolio by swapping one- to two-year agency debentures and buying three- to four-year debentures. Marty Cassell, portfolio manager overseeing $1.3 billion, estimates the trade would involve about $40 million in assets and raise the firm's duration from 2.12 years to 2.2 years. He believes rates have gone too low on expectations of another rate cut by the Federal Reserve, which he sees as unlikely. Cassell was looking for two-year Treasury yields to return to 1.90% before pulling the trigger on the trade. Last Monday, yields had backed up to 2.04% from that level.

Sankaty Advisors, the fixed income outfit affiliated with Bain Capital, is ramping up a new $500 million collateralized loan obligation, Castle Hill INGOTS. The vehicle is named after a lighthouse in the tradition of Sankaty deals and will be the second CLO completed in a year by the firm, following the $500 million Race Point CLO 1, according to a market source. "Sankaty is a consistent investor in the bank loan market, when the environment is attractive," said a source familiar with the transaction. Castle Hill is largely ramped up, with the collateral being overwhelmingly leveraged loans, he added. There is a very small bond-bucket, the source clarified. J.P. Morgan is underwriting and marketing the notes, which have not yet priced.

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.

J.P. Morgan and Credit Suisse First Boston have put on hold the retail launch of a $200 million credit backing J.P. Morgan Partners' $539 million acquisition of Brand Services from DLJ Merchant Banking. As first reported last week on LMW's Web site, a bank meeting was scheduled for last Monday, but the launch was scrubbed the previous Friday and a new meeting date has not been set. One source close to the situation said the reason for the delay is "not deal related, and the meeting will be rescheduled soon, within the next two weeks." A spokeswoman for J.P. Morgan Partners declined to comment, as did a J.P. Morgan spokesman.

Bridgewater Associates will launch a portfolio of Treasury Inflation-Protected Securities in the coming months for institutional investors, says Daniel Bernstein, director of research at $35 billion in assets Bridgewater. He says the time is right for TIPS because pension funds are focusing more on protecting assets as the equity markets continue to slide. "In the $150 billion TIPS market, treasuries are growing at about $20-25 billion a year, which means that there is a lot of growth in that asset class," said Bernstein.

At least one independent analyst and one sell-side analyst argue that the recent sell-off in the bonds of Citigroup is overdone. Though some spread widening is justified, given the substantial legal risks the firm is facing from issues such as predatory lending, IPO allocations and analyst independence, bondholders should continue to add to positions, says Kathy Shanley, analyst at Gimme Credit, an independent research firm. Shanley argues that "the risk of a large legal settlement should be viewed within the perspective of a very large and diversified earnings base--especially by bondholders, who are less worried about growth in earnings per share."