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Spreads on Eastman Kodak credit-default swaps widened approximately 100 basis points last Wednesday on the back of a credit rating downgrade on its debt and uneasiness among investors over the company's declining profits.

J.P. Morgan has launched what it believes is the first high-yield credit-default swap index representing the five-year credit risk of a linear basket of 100 junk bond issuers, according to officials at the firm. "The main reason we did this is because until now, there have been no good alternatives to trade the market as a whole from the long and short side," said Angie Long, head of high-yield credit derivatives trading in New York. The product has been correlated to traditional high-yield bond indices and will allow clients to both invest and hedge their exposure to the U.S. high-yield market through the use of high-yield credit derivatives. The product is designed to cater to clients looking to allocate assets in high yield, Long said.

ORIX Corp., one of Japan's largest financial services companies with subsidiaries across the globe and JPY5.3 trillion (USD44 billion) in operating assets, is planning to increase its use of credit-default swaps to buy protection on its USD2 billion bond and loan portfolio.

Deutsche Bank and J.P. Morgan, which are going to start offering derivatives based on economic statistics (DW, 10/29), will employ new technology and intellectual property called Parimutuel Digital Call Auction (PDCA) technology, developed by Longitude, to create the derivatives.

ChevronTexaco, the corporate oil giant formed last month after Houston-based Chevron and New York-based Texaco agreed to merge, is considering entering interest-rate swaps to hedge the floating-rate debt in its nearly USD20 billion debt portfolio that will result from the merger, according to Roger Haley, an official in ChevronTexaco's treasury department who deals specifically with derivatives. He added the consolidated debt is USD16-17 billion following the merger and a majority of that debt was inherited from Texaco, which holds its debt in floating rates. But he declined to comment on the exact interest-rate composition of the portfolio.

Singapore-based OCBC Bank plans to offer equity derivatives, credit derivatives and exotic interest-rate and currency derivatives for the first time next year. The bank currently offers plain-vanilla foreign exchange and interest-rate derivatives. Yap Tsok Kee, v.p. of global treasury, said the bank will look to offer and trade the products within six months, after it has dealt with the time consuming integration of Keppel Capital Holdings.

Polish Oil and Gas Co. (PGNiG) has entered into a cross-currency interest-rate swap on the back of a recent EUR800 million (USD716 million) fixed-rate bond offering, Poland's largest ever corporate issue. Wojciech Szelagowski, deputy director of the economic department in Warsaw, said the company has agreed to enter the swap with ABN AMRO, which led the bond offering. He declined to say how much of the principal of the bond it will convert. An interest-rate derivatives official at ABN AMRO declined to comment on the transaction.

State Street Global Advisors, which manages USD25 billion in global fixed-income and cash from its London office, is planning to use over-the-counter and exchange-traded interest-rate options and options on bond futures for the first time as part of its global fixed-income portfolio management strategy, according to DW sister publication BondWeek. Vincent Kok, head of global fixed income, said the firm decided to start using options as an asset class to garner extra returns beyond its benchmarks as well as to get away from pure market directional investing and to mitigate volatility. Kok said SSgA's U.S.-based managers already use options and now this practice is being expanded globally.

The Spanish treasury is considering becoming an active end user of interest-rate swaps to shorten the duration of its outstanding debt and plans to start reviewing dealers' proposals in the coming months. Carlos San Basilio, deputy director for public debt at the Ministerio de Economía in Madrid, said the sovereign has been getting its accounting and legal teams up to speed on the use of swaps. "We are going to become more active whenever there is a possibility and banks will know they can call us," he said.

The European Investment Bank, a multinational lender with a EUR215 billion (USD192 billion) loan portfolio, is considering using credit derivatives for the first time as a means of hedging its credit risks next year. Officials at the EIB in Luxembourg said the lender is currently conducting an internal review on the credit derivatives market and is weighing whether it makes sense to use products such as single-name default swaps to mitigate risk. "Credit [derivatives] would be a completely new field for us," said Luis Pacheco, an official in the credit-risk department in Luxembourg, noting the bank has used foreign exchange swaps in the past on the back of its bond offerings but has not used any derivatives on its loan portfolio.

Taipei-based Dah An Commercial Bank recently entered a TWD1 billion (USD29 million) three-year interest-rate swap as a partial hedge for its TWD5 billion fixed-rate car loan portfolio. It is considering entering further swaps next year to convert its entire fixed rate loan portfolio into a synthetic floating-rate asset as interest rate hikes are expected in 2002, when Taiwan's economy is tipped to recover, according to Darren Chiu, fixed income trader at the bank in Taipei. In the recent swap Dah An pays a fixed rate of 2.85% and receives the floating 90-day commercial paper rate, which was at 2.5% last Monday.

UBS Warburg is looking to hire a London-based negotiator for its derivatives contracts with counterparties in Europe, the Middle East and Africa. An official in the credit risk management documentation group in London said the role would involve tailoring separate master agreements that the firm agrees with each of its counterparties, within International Swaps and Derivatives Association guidelines.