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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.

Corporates entered Thai baht/U.S. dollar strangles last week after implied volatility fell in recent weeks on the currency pairing. "Vols are softening on the front end," said Johnson Wong, senior currency options trader at HSBC in Hong Kong. He continued that with low volatility, corporates with baht exposure were looking to profit on the vols remaining low and gain on the day-to-day time decay via strangles. "This makes sense if the market stays within a tight range," noted Wong. In a typical position, Wong said two-month U.S. dollar calls/baht puts were sold at THB45.5 while two-month U.S. dollar puts/baht puts were sold at THB44.2.

Zenith Asset Management, a private investment fund in Singapore investing throughout the Asia-Pacific region, is considering trading over-the-counter equity options for the first time as a tool for hedging as well as investing. Harold Woo, director in Singapore, said the fund manager got up and running two months ago and it will first use index futures and single stock futures with over-the-counter options being added after six months.

Firms in Singapore are planning to boost the range of interest-rate derivatives products they offer to include constant-maturity swaps and swaptions. The expansion beyond plain vanilla swaps is part of the coming of age of the Sing mart and the development of a fixed-rate benchmark, according to traders. One trader estimated 10-15 exotic products will have been traded by year-end from almost zero today.