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Daido Life Investment Trust Management, with over JPY300 billion (USD2.3 billion) under management, is considering purchasing credit-default protection for its JPY1 billion (USD7.5 million) domestic convertible bond portfolio, once it receives the okay from regulators. A fund manager at Daido in Tokyo said that as the convertible bond portfolio is part of a public fund, it is currently prohibited in Japan to use credit derivatives. However, the fund manager mentioned that this is currently being discussed internally, and he believes that within six months it will approach The Investment Trust Association, Japan, a self-regulating body for investment trusts, to get approval and possibly buy credit-default protection within 12 months.

The International Swaps and Derivatives Association is petitioning the Czech Republic and Slovakia to allow close-out netting. Peter Warner, assistant director of European policy at ISDA in London, said it had meetings in the two countries last week and expects both countries to pass legislation by year-end.

JPMorgan has started marketing a synthetic collateralized debt obligation referenced to a USD1 billion portfolio of investment-grade bonds. The CDO, dubbed AMBER, has an actively managed reference pool, according to potential investors who have seen the preliminary proposals for the deal. It could not be determined who will manage the deal. Officials at JPMorgan declined comment.

KBC Financial Products started lobbying the Stock Exchange of Hong Kong last week about listing capital guaranteed notes--structured with over-the-counter derivatives--on the exchange, according to Sajeev Sirpal, managing director and head of Asia in Hong Kong. A typical capital guaranteed note will consist of a combination of a zero-coupon bond and a structured over-the-counter call funded by the interest on the note.

Market makers bought approximately one yard of USD0.8650 one-week euro puts/dollar calls Jan. 25 and Jan. 28, which sent implied volatility rocketing to 11% from 9.5%. Spot was trading around USD0.8630 when the options went through, according to traders.

Merrill Lynch plans to structure a managed synthetic collateralized debt obligation by the end of the first quarter. The deal is likely to be referenced to a EUR750 million (USD643 million) pool of investment-grade credits, according to Hermann Watzinger, managing director and head of securitization and portfolio credit derivatives in London. He added that the reference pool will be split into 80% European names and 20% U.S. names because investors have more appetite for European corporates.

Estée Lauder is considering pulling the trigger on an interest-rate swap to convert its debut bond issue into a synthetic floating-rate liability. Earlier this month, the manufacturer and marketer of makeup, fragrance and skin care products, sold USD250 million in 10-year senior notes. Chris Brugo, director of capital markets in New York, said Estée Lauder is contemplating a swap in which it would receive the 6% coupon on the notes and pay a LIBOR-based rate. The company opted not to engage in the swap as part of an all-in-one offering because it wants to monitor interest rates, but he declined to elaborate.

Close-Out Netting

Credit-default protection on Tyco International widened 150 basis points Wednesday as skepticism continued to mount over the company's accounting practices and plans to split the company into four parts. Credit spreads on Tyco widened to about 450bps Wednesday from 275bps a week earlier as a host of market players, from hedge funds to high-net-worth individuals, scrambled to buy protection. "Tyco is a very widely owned name. So many people got burned on Enron that they're starting to panic over Tyco... There is not a huge threshold for pain since Enron," said one credit-default swap trader in New York. He added that there is a strong correlation between the owners of Tyco and the owners of Enron. "If you run the numbers, you'll find that everyone who owns Tyco owned Enron," another trader said.

UBS Warburg plans to start structuring synthetic collateralized debt obligations in Asia. It has hired Robin Willis, managing director of structured products at Bear Stearns, as head of principal finance in Hong Kong, to lead the effort, according to Joonkee Hong, managing director and Asian head of debt capital markets in Hong Kong.

The U.K.'sExport Credits Guarantee Department, a government agency responsible for facilitating and insuring British export companies, is planning to make its first investment in structured credit products to hedge credit risk on its GBP20 billion (USD28.5 billion) contingent liability portfolio. The initiative follows a routine internal risk audit from more than a year ago, which led to the creation of an active portfolio management team charged with mitigating credit risk in the government-backed entity's portfolio, according to said Peter Rossington, senior manager for active portfolio management in London

UBS Warburg is in the process of setting up an emerging markets group to cover fixed-income derivatives for Latin America and Eastern Europe. Coverage will include local currency products, such as interest-rate swaps and structured products, according to an official at the firm. The official continued that while the bank has targeted the markets out of the U.S. and London it does not have a dedicated emerging markets group for derivatives products. It currently has a team of 10 debt capital markets professionals, which covers Latin America, primarily focusing on debt origination but also distribute fixed-income derivatives products and a team of four who cover Eastern Europe.