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Credit-default swap spreads tightened across the telecom, auto and industrial sectors late last week as proprietary trading desks started to take profits on default swaps they had bought in the last weeks. Five-year protection on DaimlerChrysler tightened 20 basis points to 160bps last week. Traders said investors were selling positions they had put on at the start of the month when the car manufacturer was trading around 145bps. Five-year protection on Ahold also tightened 20 basis points to 145-165bps by Thursday morning from midday on Wednesday, while Cable & Wireless tightened 60bps to 320-350bps.

The cost of U.S. dollar/Canadian dollar options rose and risk reversals flipped last week amid strong buying interest in greenback puts/Canadian dollar calls. Foreign exchange options traders said vol rocketed because a firm, whom they declined to name, bought nearly a yard of one-month U.S. dollar puts struck at CAD1.57, likely for a client. Spot was at CAD1.5780 late Wednesday in New York, down from as high as CAD1.59 earlier in the week. One-month implied volatility rose to 9.6% after the buying action Wednesday from 8.8% Monday. Traders expected spot to move even lower, as 25-delta risk reversals flipped to 0.2 vol in favor of dollar puts/Canadian dollar calls, from 0.1 vol in favor of dollar calls/Canadian dollar puts on Tuesday.

SNS Bank, the banking arm of banking and insurance company SNS Reaal Group, plans to enter interest-rate swaps and possibly foreign exchange swaps on approximately EUR1 billion (USD966 million) of medium-term notes by year-end. SNS issues approximately EUR6 billion of debt per year, 35-50% of which is issued through MTNs, said Bart Toering, head of capital markets in Amsterdam.

Credit Suisse First Boston and JPMorgan are looking at ways to reduce the foreign exchange risk in synthetic collateralized debt obligations to improve the efficiency of the structure. At the moment CDO structurers get a conservative rating where deliverable obligations can be in several currencies, because a shift in the exchange rate could alter the real recovery rate, said Irene Ho-Moore, managing director at Standard & Poor's in London.

Credit derivatives professionals' paychecks were flat or down on last year, according to a survey by headhunting firm Sheffield Haworth. Credit has been one of the hottest areas in derivatives for the last few years and salaries have been rising steadily, but salaries were capped to subsidize less profitable areas of firms, said one senior credit derivatives pro.

Bank of America, CIBC and Commerzbank are joining a growing number of firms looking to structure hybrid products to hedge credit or bankruptcy exposure via equity and credit derivatives. The recent bankruptcies of once mighty companies, such as Enron and WorldCom, and the deteriorating corporate credit environment makes a compelling case for using both equity and credit derivatives to manage exposure, according to bankers. "In [bear] markets there is a high correlation between equity and credit," said Rajeev Misra, global head of credit derivatives at Deutsche Bank in London.

Anthem Inc., the fifth-largest publicly traded health benefits provider in the U.S. and the newest member of the Standard & Poor's 500 Index, is considering entering its first interest-rate swap in more than a decade, according to George Martin, treasurer in Indianapolis. He said the company, which issued USD950 million in fixed-rate debt last month, may seek to convert at least a portion of that deal into a synthetic floating-rate obligation. Anthem has a total of USD1.8 billion in outstanding debt.

Greif Bros. Corp., a maker of industrial packaging with annual revenue of roughly USD1.5 billion, is planning to enter interest-rate swaps to partially convert the fixed-rate liability from a recent bond offering into a synthetic floating-rate obligation. Rob Zimmerman, assistant treasurer in Delaware, Ohio, said the company did not enter any swaps as part of the USD250 million deal, which was priced late last month, or immediately after it because it hopes to get a more attractive rate by waiting. "We will be swapping it out on a scheduled basis, because the market is so [bad] right now we would be paying a high spread over LIBOR," he said.

The International Swaps and Derivatives Association is working on a revised version of the 1992 Master Agreement. Parties should carefully consider the proposed changes because these agreements have become the market standard for documenting over-the-counter derivatives.

Merrill Lynch has started to send clients research that monitors the relative value between cash bonds and credit default-swaps. Separately, JPMorgan has added U.S. dollar-denominated Eurobonds and telecom step-up bonds to its existing basis report. Chris Francis, head of international credit research at Merrill in London, said clients have been asking for this data because of the volatile nature of the basis between the two and the opportunity to capture the arbitrage.

Tullett & Tokyo Liberty, is planning to add up to five equity derivatives brokers for its White Plains, N.Y., office, said Vincent McCrudden, co-manager of equity derivatives. He said the broker, which already acts as a conduit for interest-rate and credit derivatives trades, has branched out to the equity derivatives side as part of a broader push into the U.S. equity market. It began U.S. equity derivatives operations in listed and over-the-counter securities, at the end of last year and the hires are a result of growth.

Northern Rock, a lending and savings bank, has used an interest-rate swap to convert its recent GBP200 million offering into floating-rate debt. Phil Horner, head of derivatives in Newcastle-upon-Tyne, said the company typically converts its fixed-rate exposure into floating-rate. In the swap, Northern Rock receives the coupon on the bond offering, which is 7.053%, and pays a floating rate of LIBOR plus a spread, which Horner would not disclose.