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The Republic of Cyprus is considering entering its debut interest-rate swap to convert the fixed-rate liability on a recent EUR550 million (USD480 million) bond into a floating-rate obligation. The move comes as the Mediterranean republic's proportion of fixed-rate debt rises and as it looks to become a more sophisticated risk manager in preparation for its expected European Union entry in 2004. "We are getting more into the European market and as a result are becoming more conscious of pricing and market movements and interest rates," said Leslie Manison, advisor to the Ministry of Finance in Nicosia. The republic raised EUR550 million (USD480 million) through a 10-year deal earlier this month. In the swap it will pay a floating rate and receive the 5.5% coupon on the bond.

Euro/dollar one-month implied volatility hit its lowest level in three years last week as a range-bound spot led to a continued decline in demand for options. One-month vol fell to 8.05% by Thursday from 8.75% at the start of the week, this is its lowest level since February 1999. Implied vol was roughly 10% at the start of the month. "The market's been really slow and range-bound, it's not giving any signals which way it will break," noted one options trader. Although activity was generally scattered, he said there was a sizable interest from clients buying longer-dated euro calls/dollar puts with strikes between USD0.88-USD0.92. Spot was USD0.87 Thursday. "We've seen a lot of clients covering their long dollar positions by buying euro calls for hedging" one trader said.

Default-swap spreads on France Telecom have inverted--the first time that has ever happened in the European credit derivatives market--due to demand from hedge funds seeking to buy short-dated protection to hedge credit risk on the company's short-dated convertible bonds. Mid-market three-year protection was 275 basis points Thursday, while mid-market five-year protection was 255bps according to Chris Francis, head of international credit research at Merrill Lynch. Robert McAdie, structured credit analyst at Lehman Brothers in London, added, "This is an interesting phenomenon that is really being driven by hedge funds in the market."

Fortis Bank is marketing its first global sector click notes and has used over-the-counter derivatives to structure the product. Koen Zoutenbier, senior account manager on the derivatives and structured products desk in Amsterdam, said the product is structured by purchasing a zero-coupon bond and a click option.

Groupe Casino, the French retail superstore, has entered an interest-rate swap to convert a fixed-rate bond it issued earlier this month to a floating-rate liability. Regis Taillandier, head of funding in St-Etienne, said the company converted the EUR400 million (USD350 million) transaction into a EURIBOR-based rate through over-the-counter swaps with the lead managers on the deal: JPMorgan, Société Générale, Credit Lyonnais and Natexis Banques Populaires. A Natexis official confirmed the swap while a SocGen official declined to comment. JPMorgan and Société Générale officials on the swap did not return calls.

Marsh, one of the largest insurance brokers in the world with USD4.78 billion in revenue, is working to set up a weather derivatives desk in New York to broker plain-vanilla weather derivatives. Marsh plans to broker deals on behalf of its insurance clients, according to a company official. The company has hired Partho Ghosh, a weather derivatives marketing manager at Enron in Houston, to help lead the effort. Ghosh declined to comment.

A 50% cut in bonuses is reportedly to blame for prompting half of Goldman Sachs' convertible arbitrage trading desk in New York to quit over the last month, according to market officials. Trader Alex Lache recently became the third member of the team to depart. Lache left the firm to join Camden Asset Management, a hedge fund in Los Angeles, to fill a similar position. Bruce Corwin, spokesman at Goldman Sachs in New York, declined comment.

Credit default-swap protection on Household International, the consumer finance giant in Prospect Heights, Ill., widened 12 basis points Wednesday, as investors lost confidence in the firm after allegations that it overcharged borrowers in California, according to credit-default swap traders. Mid-market default swaps were quoted around 215bps Wednesday in comparison to 180bps a week earlier.

Irish Life & Permanent, Ireland's largest life assurer and mortgage lender with more than EUR40 billion (USD35 billion) under management, has entered an interest-rate swap in a punt that the sterling swap curve will flatten. Niall Boles, chief dealer in Dublin, said the group's proprietary sterling swaps book entered a GBP250 million (USD357 million, notional) two-year swap earlier this month, in which the company receives a 5.1% fixed and pays six-month LIBOR, which was 4.25% at the time it entered the contract. "We like the carry trade, we think the curve is quite steep at the moment because people are expecting rate hikes," he noted.

Traders at bulge bracket derivatives houses, such as Citibank, Deutsche Bank and Société Générale, in Korea expect volumes of interest-rate options, including caps, floors, and swaptions, to rocket this year on the back of the Korea Futures Exchange launching options on Korean treasury bond futures in May. "Price-makers for caps and floors will be able to use the options to [hedge] volatility," said K.H. Kim, v.p. of derivatives products at SG in Seoul. He continued that by year-end, trading in interest-rate options could reach daily volumes of KRW10-20 billion (USD7.6-15 million). Current volumes are KRW100 billion a year, said an official at Citibank in Seoul.

Last week's disclosure that HSBC will not pay bonuses to its equity cash and derivatives professionals had rivals and headhunters abuzz with speculation this sounds the death knell of the firm's investment banking pretensions. Although bonuses are down around 30-50% across the board in equities, market professionals said HSBC's apparent decision to do away with them altogether is unprecedented.

The International Swaps and Derivatives Association is looking to hire an assistant director for its London office to deal with risk management and accounting issues on a global basis, according to Emmanuelle Sebton, head of risk management in London. The hire will report to her and fills a vacancy left by a departing official whom Sebton declined to name.