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Dresdner Kleinwort Wasserstein is structuring one of the first synthetic collateralized loan obligations to be based on a reference portfolio of high-yield loans. The USD1 billion CLO is due to hit the market early next month. Ebo Coleman, v.p. senior analyst in the structured finance group at Moody's Investors Service in London, said the agency has not rated any high-yield synthetic CDOs in Europe but is looking at several transactions and expects at least two to come to market before year-end. Officials at DrKW declined comment.

Louis Dreyfus Group plans to launch a weather derivatives trading desk in London before year-end. Kevin Green, director of weather risk in Wilton, Conn., said the desk will operate within the firm's agricultural derivatives division. Green said the firm is still assessing if it will need to make additional hires to man the desk. "Right now we're formulating our European strategy. It shouldn't be that long before we begin trading," he said. The London desk is likely to mirror the U.S. operation, primarily focusing on customer business with a limited role as a market maker. Dreyfus has an extensive energy and agricultural client base from which to draw for weather trades, Green said. Robert Schut, who works in Dreyfus' London agricultural derivatives group, has been working closely with Green to research setting up the weather desk and is likely to take on a managerial position on the new desk, Green said. Schut declined comment.

London Electricity plans to start using weather derivatives before year-end to hedge its exposure to gas and electricity prices. Jack Watkins, energy trader in London, said "It would be foolish not to [hedge exposure to the weather]." The company has been looking at hedging for five years but has not entered weather contracts yet because the market was too illiquid. London Electricity has decided to make the plunge this winter because of increased liquidity in plain-vanilla options and the increasing number of bespoke products.

Banks in India, including credit derivatives heavyweights J.P. Morgan and Deutsche Bank, have begun informal discussions with the Reserve Bank of India about setting up a credit derivatives market. Rajiv Baruah, co-head of Indian global markets at Deutsche Bank in Mumbai, said "the building blocks are there." Baruah added the development of a local market would allow local corporates to transfer credit risk through credit derivative products, such as credit default swaps and total return swaps.Srinivasan Varadarajan, treasurer at J.P. Morgan in Mumbai, said his firm is in regular dialogue with regulators about developments in the Indian market, declining to elaborate. He continued that there is enormous potential for a credit derivatives market, adding that it could reach an annual notional size of USD500 million in three years. Officials at the reserve bank declined comment.

AEGON has entered a cross-currency interest-rate swap to convert a CHF150 million (USD90 million) three-year bond into a synthetic euro-denominated liability. Wilma Schouten, capital markets officer in the Hague, said in the three-year swap it pays six-month Euribor and receives six-month Swiss LIBOR.

Five-year credit protection on Dutch telecom company Royal KPN narrowed 100 basis points last week to 250bps/260bps as the market waited on news about the KPN-Belagcom merger. London-based traders said volumes were between two and three times the average for this time of year, with approximately EUR40 million (USD36.4 million) notional trading everyday. Banks and investors taking profits before the merger announcements were behind the selling. The typical size of the trades was EUR5-10 million.

The Ministry of Finance and Economy of Peru is holding talks with bankers about using foreign exchange swaps and cross-currency interest-rate swaps for the first time to hedge its currency exposure on euro-denominated loans. It will use the swaps to convert euro-denominated debt into synthetic dollar denominated liabilities, according to Emerging Markets Week, aDW sister publication. Peru has USD5.8 billion, in euro-denominated debt. The remainding USD13.1 billion is denominated in dollars and yen.

Swiss Re Financial Products has hired Steven Olentine, credit derivatives marketer for U.S. clients at Morgan Stanley, as a structured credit derivatives salesman in New York. Olentine, who started two weeks ago, reports to Frank Ronan, head of credit in New York, according to a spokeswoman. Ronan declined comment on whether hiring Olentine was an expansion to the desk. While at Morgan Stanley Olentine reported to Peter Hamilton, head of credit derivatives sales. Hamilton declined comment on whether Morgan Stanley would look to replace Olentine, who was on vacation and could not be reached for comment.

Carlo Georg, managing director and Asian head of trading at KBC Financial Products in Tokyo, is relocating to London at the end of the month in a new position covering cash and derivatives trading across asset classes for both the European and Asian markets. Korossy said the move was decided in January after KBC Derivatives and KBC Financial Products merged but it has taken until now to execute.

Merrill Lynch has moved Ken Chang, co-head of Asia Pacific equity derivatives research in Hong Kong, to Tokyo as the new head of Japan and Asia Pacific equity derivatives strategy. He replaces Benjamin Bowler, managing director and head of U.S. equity derivatives research in New York. Bowler relocated to the New York office to replace Steve Kim, global head of equity derivatives research, who recently moved to Credit Suisse First Boston (DW, 6/8). Chang reports to Michael Maras, global head of equity derivatives research at Merrill in London. Maras said Todd Kennedy, co-head of Asia Pacific in Hong Kong, is now head of the department reporting into Chang. Chang said he is adding an additional researcher this month to the team of four in Tokyo, but declined further comment.

TD Securities plans to beef up the staff of its New York-based high-yield credit derivatives group over the next four months. Joe Hegener, managing director and head of global non-investment grade credit derivatives, said TD would look to make about five new hires. "We looking for good derivatives minds," he noted. The firm plans to increase its high-yield credit derivatives structuring and sales team. "We've just continued to see increased flow and we need to make more hires. We're not an active market marker but we have a large proprietary business and customer business," Hegener said. The group has about 25 team members, a high percentage of which are traders.

In the wake of continued earnings volatility and investment-banking layoffs at J.P. Morgan Chase (Aa2/AA-), analysts expect spreads on the firm's bonds to remain under pressure anywhere from six weeks to four months. Earnings volatility could easily lead to a downgrade, according to David Hendler, an analyst at CreditSights, an independent fixed-income research vendor. Hendler believes a downgrade would cause spreads to widen by 10 basis points by year-end, or the first quarter of next year. J.P. Morgan 6 3/4% notes of '11 were bid at 139 basis points over Treasuries last week.