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Credit-default protection on telecom companies tightened on Tuesday, grinding in even further Wednesday morning. The moves were sparked by the credits' improving equity performance and investors showed comfort that companies have begun to take needed write-downs from investments in third-generation licenses, said traders in London. In addition, Deutsche Telekom announced it was on track to report higher full-year earnings compared with last year, which tightened the price of its five-year protection to 270 basis points/280bps on Wednesday morning from 295bps/300bps on Monday, according to traders.

Charter Communications' bank debt took a five- to seven-point hit after the company revealed that it has received a grand jury subpoena from the U.S. district attorney's offices for the Eastern District of Missouri. The investigation is focused on Charter's current and disconnected customers and its policies and procedures relating to the capitalization or expense of various costs and related matters, according to a company statement. By midweek, the market for the name had sunk to the 80 1/2 - 82 3/4 range, with a couple of small trades occurring in that context. Callsto Kent Kalkwarf, cfo, were referred to a spokesman, who did not return calls by press time.

Valuation Inputs

A group of senior Bank of America equity derivatives executives that defected earlier this year are putting the final touches on their first hedge fund, Laurel Ridge Partners (DW, 2/26). The team, led by cio Van Nguyen, former business manager of the equity derivatives trading group at BofA in New York, is planning to launch the fund this quarter, as well as its offshore entity Laurel Ridge International, with USD200 million in committed capital from outside investors. Nguyen declined to name the investors but added that the firm is looking to cap the pair of funds at USD250 million.

Barclays Capital has hired Andrew Whittle, senior managing director of credit derivatives at Bear Stearns in London, as its European head of credit derivatives. This is a new role, said a spokesman, noting that previously the European credit derivatives team had reported directly to Vince Balducci, global head of risk finance in New York.

Bear Stearns is recommending clients buy dollar calls against the Singapore dollar in the short term and UBS Warburg and Commerzbank also expect a fall in the Sing dollar. James Fauset, v.p. in foreign exchange at Bear Stearns in London, said the bank has been recommending two-month U.S. dollar calls with a strike at SGD176.5, when spot was at SGD174.50 Wednesday. He said the firm has been advising hedge fund clients to put on such trades. As the global economy slows, he expects Singapore dollars to weaken more than other Asian currencies because of its dependence on exporting globally. Fauset added that volatility in the currency is usually low, around 6.3%, so the premium is only 0.50%.

Bank of America has hired Tony Kay, head of non-Japan Asia credit derivatives trading at UBS Warburg in Tokyo, to oversee credit derivatives trading for the region. "He's a top-notch guy," said one market official. Kay is reportedly receiving a two-year guarantee of USD2 million per annum. "This sets a whole new benchmark for the market," the official added. However, another official said, "They're paying over the top." Kay could not be reached for comment.

Firms selling protection to structure synthetic collateralized debt obligations caused credit-default swap spreads on high-grade names to grind tighter on Wednesday morning. Traders said that there were at least two deals, Merrill Lynch's Nationwide Building Society CDO and one from BNP Paribas. The Merrill Lynch deal is a synthetic balance sheet CDO referenced to Nationwide's EUR1.4 billion (USD1.38 billion) bond investment portfolio (DW, 4/28). The average credit rating on the deal is A3/BBB plus. Officials at Merrill declined comment and officials at BNP Paribas did not return calls.

Deutsche Bank is looking to add a staff member in London as part of its push to structure hybrid products to hedge credit or bankruptcy exposure via equity and credit derivatives, according to a firm official.

Financial institutions faced with growing inventories of unsold synthetic collateralized debt obligations and increasingly skittish investors are turning to ever more novel structures to entice buyers. The new twists structurers are putting on CDOs include kickers to the mezzanine tranche, adding structured products to the equity slice, securing ratings for deals that would previously have been placed without a rating and even putting tranches in other asset-backed products.

Alcoa, an aluminum producer with more than USD20 billion in annual revenue, may enter an interest-rate swap following its recent two-part USD1.4 billion bond sale. William Plummer, treasurer in New York, said, "We are considering the fixed-versus-floating of this new debt issue because in the current market environment with a steep yield curve, floating is attractive." In any swap, the Pittsburgh-based company would seek to pay a spread over LIBOR and receive the fixed-rate coupons on the bond.

The cost of U.S. dollar/Japanese yen options rose a full percentage point last week as the dollar fell to JPY116.50 on Wednesday, its lowest level in more than a month versus the yen. Implied vol and the dollar tend to move inversely, as the long-term trend has been dollar strength and a move away from that implies broader uncertainty, traders said. One-month implied vol rose to 11.5% on Wednesday in New York, up from 10.5% on Monday, mirroring the greenback's fall from JPY119.50 earlier in the week, according to fx options traders.