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Hedge funds have traditionally used repo agreements to short securities and gain short-term exposure to illiquid assets but increasingly are starting to use total rate of return swaps instead. Frederik Barnekow, head of securities finance at SEB Merchant Bank in Stockholm, attributes this to the growing sophistication of hedge funds. Stuart Pyott, equity derivatives trader at Schroder Salomon Smith Barney in London, added that the demand for swaps has grown over the last year because they have become more liquid, standardized and competitively priced.

A weather derivative transaction executed last week by ABN AMRO on behalf of a Dutch counterparty--and said to be the largest end user deal to trade so far--caused swap spreads to blow out and threw dealers into a frenzy. "The market is jittery to say the least," said a weather professional in London. He noted that spreads on heating degree-day (hdd) swaps for the November-March winter season referenced to Heathrow Airport widened by as much as 10 hdds Wednesday from levels close to 1,700/1,702 hdds prior to the trade. Alex Schippers, head of the weather group at ABN in Amsterdam, and a spokesman declined comment.

Stephen MacLennan, head of interest-rate derivatives trading at Standard Chartered Bank in Hong Kong, recently resigned in the midst of a reorganization of its interest-rate derivatives desk. Reasons for the departure could not be determined by press time. Mike Bass, head of interest-rate derivatives in Singapore and to whom MacLennan reported, declined all comment on MacLennan. MacLennan could not be reached.

Tradition Financial Services has hired Dan Butzbaugh, a weather derivatives structurer at New York-based Willis Re, to fill a newly created position as a structurer in the firm's weather derivatives group. Butzbaugh said he joined Stamford, Conn.-based TFS about two weeks ago after working at Willis Re for more than four years. He reports to Kendall Johnson, senior v.p.

The collapse last week of U.K. rail operator Railtrack is causing credit derivatives professionals to reconsider their positions in other companies regulated or subsidized by the U.K. government. The Railtrack collapse is significant because it is the first investment grade default in the European market. Since the company was put into administration traders are revaluing credit-default swaps that are priced with an implicit government guarantee on the reference credit, according to credit traders. For example five-year protection on National Grid widened 15bps to 40-45bps last week. Although National Grid does not have explicit backing, the company's rate of return is determined by the government.

British glassmaker Pilkington has entered several euro-denominated interest-rate swaps to convert a EUR350 million (USD320 million) fixed-rate bond it issued at the beginning of the month into a synthetic floater. Adrian Marsh, head of group accounting and treasury in St. Helens, England, said the company entered the swap to have floating liabilities as global interest rates continue to fall. The corporate issued fixed-rate debt because there is more investor demand for fixed rate than floating-rate debt. "Fund managers, insurance companies and retail all want fixed-rate and the seven-year aspect of it is the liquidity," he said, adding it would be unusual for a corporate to issue a floater. Proceeds from the bond offering will be used to cover the company's euro funding needs and will not be swapped back into sterling.

UBS Private Banking plans to raise the profile of alternative investments in both its discretionary accounts and advisory products and will boost its use of over-the-counter derivatives in the process. Rainer Kensy, global head of alternative investments in Zurich, said, "we will offer everything... The whole nine yards," referring to hedge funds, private equity and guaranteed products. He added that the numbers are mouthwatering, with alternative investments expected to account for 5% of the private bank's over USD500 billion under management in three years. At the moment they account for about 1%. Christopher Fawcett, director at Fauchier Partners, which runs portfolios of hedge funds, in London, said "This is a material sum." Adding that the entire hedge fund industry only has about USD500-600 billion under management.Martin Phipps, head of hedge funds at Gartmore in London, said "This can only be positive for the hedge fund sector."

OppenheimerFunds, mulling a name change to Oppenheimer Asset Management to reflect a broad mandate in investing rather than just mutual funds, is now thinking through how to package the equity tranche of collateralized debt obligations for high-net-worth investors. The planned move is a unique one-and Oppenheimer has yet to come up with a full-proof strategy to actually offer the securities-but it is in line with Oppenheimer's aggressive bid to offer a full lineup of investments for the affluent market. Oppenheimer has had success in packaging CDOs for the institutional market, raising about $1 billion last year. "We want to take a truly institutional product and redesign for the HNW investor," the official said.

AMR Investment Services will rotate 10% of its portfolio, or $14 million, from agencies into corporate bonds should the Federal Reserve bring the Fed fund rates from its current 2.5% level to 2%. Bonnie Mitra, senior portfolio manager, says he considers 2% the bottom of the Fed easing cycle and the first trigger for a pending corporate bond rally.

Texas Pacific Group found out the hard way that the difference between making a discreet inquiry about a big deal and informing the media of its intentions may come down to a single number--a fax number. Reuters reported that Texas Pacific Group apparently thought it had sent a fax to UBS chairman Marcel Ospel expressing interest in a new Swiss airline based on regional carrier Crossair, but sources close to the deal said the fax from Texas Pacific's ceo David Bonderman intended for Ospel was instead sent--by accident-- to Swiss weekly business journal HandelsZeitung instead. Loan Market Week's fax number may or may not be (212) 224-3956.

The Deal Roll-off Chart, provided by Capital DATA Loanware, lists the 50 largest leveraged credit facilities in the U.S. market that are due to mature in the coming month. It is designed to provide a look at potentially available money in the market as credits are renewed or retired.

Winston-Salem, N.C.-based Wachovia Asset Management is considering shifting 2-3%, or some $140-210 million, of its fixed-income assets into 10-year auto paper. Wayne Morgan, portfolio manager of approximately $7 billion in taxable fixed-income, says the firm would probably swap out of shorter-maturity ABS or telecom bonds in an attempt to pick up spread and capitalize on a steep yield curve. He says he has been taking a preliminary look at General Motors Acceptance Corporation 6.875% notes of '11 (A2/A). The bonds had widened to 237 basis points over Treasuries last Monday, 40-45 basis points wider than they were on Sept.11. Morgan says Wachovia may buy the bonds at those levels, but he wants to re-read the credit reports before taking the plunge. Any widening in the bonds, in spite of the implications it would have for further softening in the economy, would only make them more attractive, from Morgan's point of view.