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Sydney-based hedge fund Basis Capital is considering entering an asset swap in the coming months as part of a convertible bond arbitrage strategy on Singapore's Chartered Semiconductor Manufacturing. The corporate is trading at around 650 basis points over the swap curve, according to Steve Howell, cio in Sydney. He added that he expects the converts to tighten to around 500bps in the coming months. Howell attributes the temporary widening to part of a general credit spread widening since the Sept. 11 terrorist attacks in the U.S. It will likely enter the trade within three to six months if credit quality stabilizes and the credit risk premium narrows.

ABN AMRO has hired Wing Hong Chan, v.p. in the corporate advisory group at J.P. Morgan in Hong Kong, as v.p. of derivatives marketing for the financial markets group at ABN in Hong Kong. Chan will handle derivatives marketing for Hong Kong and China, according to Bruce Shu, spokesman at ABN in Hong Kong. Chan reports to Greg Major, senior v.p. and head of Asia Pacific derivatives marketing at ABN in Singapore.

AXA Investment Managers is planning to offer an Asian absolute return and a statistical arbitrage hedge fund in the first half of next year to institutional investors. Both funds will be able to use over-the-counter derivatives and the firm expects to raise approximately USD500 million for each strategy over the next three years, according to Joanna Munro, global head of business development and fixed income and structured asset management in London.

BNP Paribas is suggesting Taiwanese corporates with U.S. dollar exposure buy three-month at-the-money U.S. dollar calls/Taiwan dollar puts because it anticipates an easing in monetary policy and increase in volatility caused by a weakening Taiwan dollar. Thio Chin Loo, currency analyst at BNP in Singapore, said, "We expect the engineering of weaker exchange rates [after the election]." She continued that after a general parliamentary election in early December the central bank will probably allow the Taiwan dollar to fall by TWD.50 to TWD35. The bank currently keeps the Taiwan dollar around TWD34.5.

Credit derivatives market makers and end-users in New York and London have stopped entering derivatives transactions with Enron--or at least severely curtailed their activities-- in the wake of a Securities and Exchange Commission inquiry into the company and the possibility of further credit downgrades. Alex Parsons, spokesman at Enron in London, admitted that credit lines to Enron are constrained but said it still has access to the derivatives markets.

The Hong Kong branch of Bayerische Landesbank plans in the coming months to start trading credit derivatives for the first time. The bank will purchase protection to hedge its bond portfolio and sell protection for investment purposes, according to Sattpy Chan, fixed-income trader. The bank will focus on Hong Kong credits, which make up the majority of its fixed-income portfolio. The typical notional sizes of the transactions will likely be USD5-10 million, noted Chan. "We want to make money," said Chan of the branches' reason for applying for approval, adding that previously the market was not sufficiently liquid to trade these products.

Houston-based Reliant Resources, an independent power producer that was spun off from Reliant Energy earlier this year, is considering entering into its first interest-rate swap on the back of a planned USD1 billion fixed-coupon bond offering early next year. Andy Weaver, assistant treasurer, said it may elect to convert the entire proceeds via a swap. "We have not done any interest rate hedging yet, so I can't say what exact amount we would look to hedge," he noted.

In the U.K. and several other major markets, reverse convertibles, high coupon products financed by a short put option, have been popular in the retail investment arena. Investors are ever hungry for income, dissatisfied with meagre returns from deposit accounts, and have turned in a big way to stock market-linked high income bonds in the last three years. These investments usually have a fixed maturity of between one and five years and pay interest well above risk-free yields - typically 8-11% p.a.. While the income is fixed and guaranteed, the capital is not and is linked to one or more equity indices or stocks. In order for the capital to be repaid in full the equity performance must reach a certain target, for example not falling over the lifetime of the bond.

Merrill Lynch's structured credit products team has increased its focus on monetizing end users' assets by using asset swap technology. The firm is repackaging corporates' illiquid assets, which can include anything from cash flows to real estate, and then selling them off in an attempt to raise cash in a period when corporates are finding it hard to raise capital, according to Henry Schmeltzer, head of European structured credit products in London.

Marks & Spencer has entered into a cross-currency interest-rate swap on the back of a EUR550 million (USD491 million) bond offering last month. Jeff Denton, head of corporate finance in London, said the British retailer converted the fixed-rate deal into a synthetic floating-rate, sterling-denominated liability. "Our requirement is floating sterling, but we funded in euros to meet demand from investors," he added. Morgan Stanley and Deutsche Bank, who co-managed the bond offering, were counterparties in the swap with two other relationship banks whom Denton declined to name. In the swap, Denton said the retailer receives the 5.125% coupon to pay its five-year bond and pays just over 100 basis points over six-month LIBOR.

Scotia Capital has hired Mitali Sohoni, credit derivatives saleswoman atToronto Dominion Securities, to fill a new position as a credit derivatives saleswoman and structurer in New York, according to Barry Delman, managing director. Delman said that bringing Sohoni on board is part of the firm's plan to increase its presence in the credit derivatives market both in the U.S. and London. Sohoni started earlier this month and reports to Delman. Scotia Capital hired a team of four credit pros in London, including a head of the department earlier this month (DW, 10/7).

Credit default spreads on Spanish oil and gas giant Repsol YPF widened last week amid concerns that a potential sovereign default by heavily indebted Argentina could have a negative impact on Repsol's Argentine assets. Five-year protection on Repsol widened about 30 basis points to 130-140bps on Wednesday from 100-110bps the week before, according to London-based traders. "Some of the Spanish names are wider and Repsol in particular because it has the largest exposure to Argentina," summed up one trader. Repsol purchased the Argentine oil and gas company YPF in 1999. Five-year protection on banks also gapped out. Banco Santander Central Hispano was quoted about 10bps wider at 42-52bps Wednesday.