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Implied volatility on one-week euro/U.S. dollar options popped to around 9.25% Wednesday from 8.5% after Morgan Stanley and Goldman Sachs were seen piling into the euro/dollar options market. Dealers in New York said both firms were active buying a combined total of around USD1 billion of euro puts/dollar calls struck at USD0.90 in an extraordinary three-hour feeding frenzy. Spot was at USD0.91 when the trades were executed. Traders at Morgan Stanley and Goldman referred calls to their respective press offices. Melissa Stonberg, a spokeswoman at Morgan Stanley, and Bruce Corwin, a spokesman at Goldman, declined to comment.

One-month euro/yen implied volatility rose last week to 8.50% on Wednesday from 7.6% Monday as the yen rose to JPY127 against the dollar and investors feared Japanese intervention. The dollar weakened against most currency pairs, but investors were most concerned about the yen, as the Japanese authorities have set a target ceiling of JPY130. Rob Hayward, a foreign exchange strategist at ABN AMRO in London, predicted the Bank of Japan would not intervene unless the yen strengthens to JPY120.

Goldman Sachs is structuring its first catastrophe bond that will securitize Hawaiian hurricane risk. The USD200-400 million CAT bond is being structured for San Antonio, Texas-based insurer USAA and is expected to hit the market next month, according to a CAT bond professional in New York. Kathleen Baum, spokeswoman for Goldman Sachs, declined to comment because the issue is a private placement, and a spokesman at USAA also declined to comment.

Hamon Investment Group, with over USD300 million under management in Hong Kong, plans to use over-the-counter equity options for its newly launched long/short fund. The fund, dubbed Hamon Oriential Long/Short Fund, started investing last month with USD25 million under management and will use up to USD5 million (notional) in single-stock options to hedge downside risk for cash positions, according to Vincent Cheng, cio. "This will be for hedging positions in addition to other stocks and index futures," noted Cheng.

HSBC is preparing its first synthetic arbitrage collateralized debt obligation as part of the firm's plan to grow its ABS and CDO group. HSBC has already completed a cash arbitrage CDO, but the next deals could be synthetic if there is client demand. Rick Watson, head of the CDO group who recently joined from Bear Stearns, said the bank will also structure balance sheet CLOs for banks, which will be primarily synthetic, and cash CLOs backed by residential mortgages, consumer loans and mortgage warehousing facilities that will mainly involve a true sale.

The demand for structured and plain-vanilla Korean won/dollar options has doubled as the dollar slides against the Asian currencies. The trades have also caused 25-delta risk reversals to flip to favor dollar puts. The boost in volumes has been most prevalent in won/dollar but, "There's an increase in demand for options across all Asian currencies," said Peter Redward, Asian currency strategist at Deutsche Bank in Singapore.

JPMorgan has hired Kim DiSpigna, a senior marketer in Credit Suisse First Boston's equity derivatives group in New York, in a similar position. DiSpigna, who joined JPMorgan's New York team about a week ago, reports to Nicholas Kello, managing director and head of investor coverage. Kello said DiSpigna is filling a newly created position as a senior marketer. There are about four additional pros on the team. He added that the firm is not looking to make any additional hires.

JPMorgan is thought to be the first derivatives house to start marketing a collateralized fund obligation to investors in Asia. The CFO, dubbed Man Glenwood Alternative Strategies I, referenced to USD500 million of hedge fund investments, is being marketed globally but several tranches will be sold to Asian clients in the next two to three months, according to an official at JPMorgan. The manager of the portfolio is Man Investment Products.

Yamato Life Insurance, with JPY300 billion (USD2.3 billion) in assets, is considering making its first purchase of a synthetic collateralized debt obligation in the coming months. "We're studying the possibility," said Yoshimitsu Takano, manager of fixed-income in Tokyo, who runs the insurer's JPY20 billion fixed-income portfolio. He continued that Yamato Life may invest in yen-denominated tranches as they offer higher yield over traditional fixed-income instruments but he said it was too early to estimate the potential size or structure of its investment. He added any CDO it invested in would have to be referenced primarily to Asian credits.

Rabobank is looking to structure its first USD500 million synthetic collateralized debt obligations in Asia by year-end, according to Michael Hyde, executive director of capital markets in Singapore. "We've done deals outside of Asia and we're looking to leverage our success by replicating those strategies," said Hyde. He added, the firm has started to receive interest in Asia amid a growing understanding of credit products.

Shinsei Bank is looking to boost its nascent derivatives operation and expand into equity products by recruiting an equity derivatives trader to lead the buildup. "We're looking for a key hire," said Marten Touw, head of the markets division in Tokyo, adding that after a senior equity derivatives trader is brought aboard, there is the potential to build a team under him. Touw joined Shinsei last year from Standard Chartered Bank where he was the head of global markets for North East Asia (DW, 2/18/01).

Murphy Oil, an oil and gas exploration and production company with an approximate USD4 billion market cap, is considering converting some of its fixed-rate debt to floating. Kevin Fitzgerald, treasurer in El Dorado, Ark., said the company paid down approximately USD200 million of its floating-rate bank debt with a recent fixed-rate USD350 million bond offering, causing its percentage of fixed-rate debt to increase. Murphy Oil's total proportion of fixed-rate debt stands in the mid-70% range, up from the high 60% range prior to the bond deal, Fitzgerald noted, adding that the company is in the process of deciding on its ideal mix of fixed- and floating-rate debt for its USD800 million portfolio.