Search results for

Credit-default protection on Hewlett-Packard widened more than 40% last week on the heels of a mammoth USD1.5 billion offering the technology company issued, according to traders. Five-year default-swap spreads widened roughly 40 basis points during the week, with mid-market protection jumping to roughly 130 basis points by late Wednesday from 90bps on Monday. The bond offering was increased to USD1.5 billion. "Their existing debt was fairly minimal and then these new bonds came and pushed out default protection quite a bit," said one trader in New York. He said there did not appear to be any credit-related reason for the higher cost of protection and attributed it solely to the technical factor.

Goldman Sachs has created a standalone derivatives marketing group, called the European corporates team, to market interest-rate, foreign exchange and credit derivatives as well as general financing instruments, such as bonds and loans, to corporates. The firm formed this group to provide corporates with a single point of contact, according to Rebecca Nelson, a spokeswoman in London. Although it is only implementing this strategy in Europe, if it is successful the firm would consider replicating it in the U.S. and Asia, a Goldman official said.

"Surely we would be interested."-- Jitendra Jain, fund manager at Reliance Capital Asset Management in Mumbai, explaining that he would use interest-rate options if the Reserve Bank of India permits them. For complete story, click here.

Kuala Lumpur-based Aims Asset Management, with USD130 million under management, is considering investing in equity-linked notes in the coming months. "Right now we're trying to weather the storm," said David Watt, managing director, referring to the current slide in equity prices. He said if it makes the jump it would likely be sometime in the next six to 12 months, the decision will depend on the risk return profile of the notes. Watt noted that equity-linked notes could provide an enhanced yield over traditional investments such as cash equity. The equity-linked notes would be referenced to Asian rather than global stocks, said Watt.

Merrill Lynch is looking to build up is credit derivatives structuring effort in Tokyo on the back of growing investor demand, according to market officials. One official said Merrill is looking to hire a credit structurer as well as a marketer who will focus on CDOs. The new hires will probably report to Taro Masuyama, head of credit derivatives structuring in Tokyo, who declined comment.

Norway's export credit agency Eksportfinans recently entered a cross-currency interest rate swap to convert a JPY50 billion (USD390 million) fixed rate bond issue into a synthetic floating rate dollar-denominated liability, according to Johann Rud, v.p.-treasury in Oslo. The swap matches the maturity of the bond, which comes due in December 2003. He declined to name the underwriters or the swap counterparty. The fx rate used in the swap is JPY128.25, he added.

Merrill Lynch is bringing aboard Bertrand Hongre, v.p. in interest-rate derivatives trading at Credit Lyonnais in Hong Kong, according to officials at the firm. Hongre will start in Hong Kong, but transfer to Tokyo in the coming months, according to officials familiar with the move.

Nomura International is looking to hire two traders for its Asian equity derivatives operation in the coming months, according to market officials. One official said the Japanese investment house is looking to hire an additional trader in London and Hong Kong to bolster its coverage of the Asian markets as interests grows for Asian exposure. The traders will likely report to Andy Wong, head of equity trading in Hong Kong, according to officials. Wong declined comment. The firm currently has only one trader stationed in the U.K. overlooking Asia.

Singapore-based OCBC Bank is preparing to start marketing structured notes for the first time in the coming weeks. "We'll have something out in the next few months," said Yap Tsok Kee, v.p. of global treasury. OCBC has been looking at offering exotic derivatives for sometime (DW, 11/11) and started marketing interest-rate options earlier this year. The exotic products will include range accruals, barrier options and callable notes.

Energy traders are turning to the derivatives market to hedge against the risk of counterparties going bust, driving them to consider everything from credit-default swaps to equity puts on counterparties' stock, according to DW sister publication Power Finance & Risk. "In the past we relied on corporate guarantees. What we are looking at [now] is derivatives," said Frank Hilton, chief credit officer at American Electric Power, on his company's approach to dealing with potential defaults. PG&E National Energy Group has also been active in tapping Wall Street dealers on default protection prices, according to Bachar Samawi, v.p. of trading, though he said the cost of protection is holding back many trades. Both were speaking at the Current Challenges in Energy Trading conference in Houston last week.

The cost of U.S. dollar/euro options shot higher last week after WorldCom's revelation that it hid nearly USD4 billion in expenses fueled fears it may have to file for Chapter 11 bankruptcy protection and sparked a sharp decline in the U.S. equity markets. Mid-market one-month implied volatility rocketed to 13% by Wednesday afternoon in New York from 11.5% at the start of the week, according to traders. "WorldCom has made stocks collapse and has had an adverse effect on the dollar, it's purely that simple," said one trader in New York. He added that more than a yard of one-month euro calls/dollar puts struck at USD1.02 had gone through the market via several banks which he declined to name. Spot was USD0.9850 Wednesday afternoon, down from USD0.9945 earlier in the day. "Parity is a foregone conclusion, it's only a matter of whether it happens next week or next month. Or this week," a trader said. WorldCom's news also pushed 25-delta risk reversals in favor of euro calls to 1.5 vol from 0.9 vol earlier in the week.

Although we get droughts, floods, fire, cyclones, snow and ice, economic adversity is not restricted to disaster conditions. A mild winter can ruin the earnings of ski resorts, dry weather can reduce crop yields, and rain can shut-down the entertainment and construction industries. Weather risk is one of the biggest uncertainties facing businesses.