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Crédit Agricole Indosuez has hired Medes Ma, trader in the Asian credit trading group for treasury and capital markets at HSBC in Hong Kong, in a new role as credit trading manager for Indosuez's recently established credit derivatives desk in Hong Kong. "This hire further increases our capacities to grow a liquid market in Asia," said Loïc Fery, head of credit derivatives-Asia at Indosuez in Hong Kong. Ma, who starts at the end of the month and will handle trading for both Japanese and non-Japan Asian credits, will report to Fery. Ma was on gardening leave and could not be reached.

Valuing options on a fixed exchange rate, or on any asset price set by official decree, is problematic. To the casual observer, such options may seem illogical, since the cash rate does not move. Yet active markets have existed on such options despite explicitly pegged exchange rate regimes. Exchange rate crises in which currency pegs were abandoned, such as Mexico (1994), Russia (1998), Brazil (1999), and Argentina (2002) have also shown that options with strikes outside the band are not worthless. Such options can offer valuable information about the probability of a peg holding over a given period. Following is a basis for pricing and evaluating such options using practical methods, and some simple estimation techniques for relative valuation.

Merrill Lynch has hired Takuya Iwasaki, v.p. in foreign exchange at Morgan Stanley, as a director of foreign exchange, handling options trading in Tokyo. He reports to Masayoshi Takegawa, head of foreign exchange trading in Tokyo.

A growing number of sovereigns issuing inflation-linked bonds is expected to kick-start the nascent market for over-the-counter inflation-linked derivatives, according to bankers at the 17th Annual General Meeting of the International Swaps and Derivatives Association in Berlin last week. France last year joined the club of sovereign inflation-linked bond issuers and Italy and Germany are reportedly planning their first issue.

Grand Cathay Securities Corp., a securities house in Taipei, is looking to enter its first convertible asset swap in the coming weeks. "We're in the final stages--they're just reviewing the ISDA's," said Tony Ko, assistant v.p. of fixed income, referring to the International Swaps and Derivatives Association master documents. The firm received a license to enter asset swaps last year (DW, 6/17).

Toshihiro Hirose, general manager of the international business department at Sumitomo Life Insurance Co., has joined ING Financial Markets in Tokyo in a new role as managing director and head of institutional sales. In this position, Hirose covers foreign exchange, fixed income derivatives, repo and debt markets sales, as well as structured fixed income and credit derivatives products.

One-month euro/dollar implied volatility rebounded to 8.2% from 7.4% on Wednesday following comments from Federal Reserve Chairman Alan Greenspan suggesting rates are on hold. Traders said implied vol had been falling steadily lower because euro/dollar had been trading in a narrow range in the spot market, but Greenspan's comments caused the dollar to weaken and drove vol higher. Common trades saw both investors and hedgers buying euro calls/dollar puts struck at USD0.89-0.90 with spot trading at USD0.882 when the options went through.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market during the week ending April 20. It also tracks facility amounts, ratings, pricing and maturities.

Bob Smith, portfolio manager with Sage Advisory Services, says that, as the economy improves, he will rotate 10% of the portfolio he manages, or $200 million, from triple-A and double-A rated corporates into lower-rated corporate names rated either triple-B or single-A, keeping the overall corporate exposure neutral. The thinking behind this move is increasing corporate cash flows will lead to bond price recovery in his targeted sectors. He declined comment as to what a possible trigger would be for the move.

Bank Leumi USA has been borrowing in the repurchase market and selling commercial paper to add $200 million to its portfolio. The trade is primarily in mortgage-backed securities such as 6.5% 15-year mortgages, five-year balloon mortgages, well-structured planned amortization class collateralized mortgage obligations and U.S. government securities. Robert Giordano, who oversees some $2.2 billion in taxable fixed income for the U.S. subsidiary of the Israeli bank, says the bank is looking to take advantage of the steep yield curve in the two- to three-year area to pick up additional yield when shorter-term rates are low. While most of the $200 million program was complete as of last Monday, Giordano was still watching the direction of the two-year Treasury bond before investing the last $37 million. With two-year Treasuries yielding 3.35% last Monday, Giordano said an additional two to three basis points of tightening would convince him to invest the remaining funds, which would consist of $20 million in MBS and $17 million in U.S. government securities.

J.P. Morgan Fleming Asset Management has been building a moderately short duration position in U.S. Treasuries in its $30 billion global fixed-income portfolio and will take profits once 10-year U.S. Treasury yields reach 5.6-5.7%. Last Tuesday, the yield on the 10-year was 5.2%. London-based Jonathan Griggs, head of macro research for global fixed-income, says the portfolio's U.S. Treasury duration is now at about 0.5 years, versus a neutral duration earlier in the year. He expects this trade to run for at least three more months. For those accounts that are run based on ex-U.S. dollar benchmarks, the firm also has been running a short duration strategy at a quarter to a half year. Griggs says the firm has been focusing on buying German and French government bonds to implement the strategy. About 5% of the portfolio has been allocated to European bonds.