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Investors in yen fixed income believe that the supply and demand equation is badly out of balance. Too much money, chasing too little paper. Mark B Johnson and Richard Morrow canvassed a range of investors to find out their strategies and how much risk they are prepared to take on board to gain some yield pick-up.

Trading in the European credit derivatives and equity options market ground to a halt Monday afternoon following the crash of a Dominican Republic-bound plane in the New York City borough of Queens. One credit derivatives trader in London said his firm had ceased making markets in all names "for at least an hour, maybe more, depending on what happens," adding that the team was awaiting word on whether the crash was terrorist-related. He added the airline sector is expected to be slammed when the default swap market reopens, as confidence will have taken a further battering followed the latest plane crash. Prior to the crash, five-year protection was quoted at 220-225 basis points for Lufthansa, 150-200bps for Air France and 600-700bps for British Airways. "The sector will be a lot wider" when the market reopens, he added.

Aanders Haagen, formerly v.p. of structured credit products at Bank of America in Hong Kong, is joining ABN AMRO in Singapore, according to a market official familiar with the move. He is expected to start in two weeks. Haagen did not return calls.

Trading on credit-default swaps referenced to Enron and Dynegy dried up last Thursday as Dynegy appeared to be moving closer to acquiring a stake in its struggling rival, according to traders. Trading volumes on Enron, which just a few weeks ago was trading every day, was non-existent as the acquisition talks intensified, said traders in New York. "There's no flow at all. The only thing we're seeing is firms' unwinding previous trades," said one trader. Most of this business came from hedge funds that had previously bought protection. Another trader said "it's hard to offer protection on risk that's just hanging out there." Trading flows on Dynegy, which were already thin--averaging about one trade every three months--followed the same path as Enron.

BT Funds Management, a Sydney-based investment manager with over AUD34 billion (USD17 billion) under management, plans to start trading credit derivatives for its AUD1 billion (USD514 million) fixed-income portfolio within three months. Robert da Silva, head of corporate credit, said the fund manager is in the process of setting up the capabilities and preparing documentation for the effort. It is preparing the move now because of increased liquidity in credit-default swaps.

Barclays Global Investors in San Francisco unwound a credit-default swap on Walt Disney Co. last month after gaining a 20 basis point profit. Peter Freilinger, principal and head of the structured products group, said the firm bought five-year credit protection on the company following the Sept. 11 U.S. terrorist attacks because it correctly predicted spreads on Disney would widen. He added that the move was based on the assumption that the attacks would negatively impact the company's cash flow because of a drastic drop in visitors to Disney's theme parks.

Bear Stearns International is planning to hire two credit derivatives traders for its London-based team. Olivier Staub, who is currently the team's sole trader, said the hires would come as part of the firm's broader strategy to become a bigger player in the European market. "Bear is expanding in Europe and credit derivatives was identified as a key market to be in," he noted, adding the firm has made some hires on the sales and marketing side in recent months and now wants to complement that on the trading side. Staub himself is a relatively new recruit, having joined a few months ago from J.P. Morgan. Bear Stearns is also planning to hire for its London-based interest-rate product group as part of its European strategy (DW, 10/22).

Citibank has structured what is believed to be the first option on Korean Treasury bill futures. An official at the firm in Seoul said that a local corporate purchased a USD16 million over-the-counter option with a one-month maturity on the one-month future for the three-year Korean Treasury bond. "This is the first I've heard of," said a trader at a rival firm. He continued that the Korea Futures Exchange (KOFEX) is looking to list KTB options next year, and possibly options on KTB futures.

KBC Alternative Investment has bought credit protection on Pinault-Printemps-Redoute , a French distributor of luxury goods, as part of a convertible arbitrage strategy. Andy Preston, fund manager, said it bought a credit-default swap referenced to the French corp. and has a long position in a EUR1.3 billion (USD1.16 billion) convertible bond the company issued two weeks ago. The hedge fund's net position is long an equity call option on PPR, since it has hedged out the credit risk. The option allows the fund to convert the bond into equity at any price. However this would only make sense if the share price multiplied by the number of shares per bond was greater than the price of the bond, for this issue the level is EUR140.5, according to Preston.

Deutsche Bank plans to hire up to five new structurers and sales professionals for its London-based structured products group as the current volatile global equity market conditions fuel demand for equity-linked notes.Johan Groothaert, managing director and head of equity structured products and alternative investments in London, said the bank currently has a team of roughly 50 staffers in the structured products group and is overstretched. He added he is looking to add the personnel in the new year.

Deutsche Bank is arranging a EUR1 billion (USD8.98 billion) managed hybrid collateralized debt obligation, dubbed Jazz, which AXA Investment Managers will manage. Rival bankers said this is an innovative transaction and expect it to be one of the first deals to hit the market in which the manager actively runs a portfolio of default swaps. It could not be determined why the CDO is named 'Jazz', but one banker suggested it may be because Deutsche Bank hopes the deal will be music to investors' ears. Officials at Deutsche Bank and AXA declined to comment.