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Citibank is recommending corporates buy dollars against the Swiss franc because the options are cheap because the market is positioning for further dollar depreciation against the Swissie. T.J. Marta, foreign exchange strategist at Citigroup in New York, said demand for Swiss franc calls means now is a good time to buy dollar calls at low premiums. The one-month 25-delta risk reversal shows a 1.25 bias in favor of Swiss calls/dollar puts. There have only been two other occasions, the collapse of Long-Term Capital Management in 1998 and the introduction of the euro in 1999, when dollar/Swissie risk reversals have been this skewed in the last nine years.

Credit Suisse First Boston and Cantor Fitzgerald are beefing up their U.S. interest-rate swap desks in the expectation that the swaps curve will topple the Treasury yield curve as the fixed income market's benchmark. The two firms are voting with their feet at a time when others are still debating whether swaps or Agencies will unseat Treasuries' benchmark status.

Unlike vanilla interest-rate swap prices, constant maturity swap prices depend on volatility. This Learning Curve reviews the key points in CMS swap pricing and highlights the impact that the interest rate volatility smile can have in pricing.

Montgomery Asset Management will rotate from Treasuries into mortgage passthroughs for an additional 5% of its portfolio, or $155 million, says Thomas O'Connor, portfolio manager of the Walnut Creek, Calif.-based asset management firm. O'Connor says that he has already rotated 10% of the overall portfolio, or $310 million, by putting on this trade.

Baxter Capital Management, an Indianapolis money management firm with $1.4 billion in taxable fixed-income, plans to lower its duration and add some $20 million in lower-rated corporate bonds. Gary Baxter, portfolio manager, says economic indicators, including those in the manufacturing sector, seem to be bottoming out, and he believes interest rates will soon begin to rise as investors gain confidence that a turnaround is imminent. Last Monday, the 10-year note was yielding 5.16%, and 30-year bonds were yielding 5.57%. Baxter says an increase of 10 basis points in each of those yields will convince the firm to lower duration by 0.4-years, largely by selling longer-dated Treasuries.

On the view that the Federal Reserve Board may have to ease further, causing the yield curve to steepen, David Kotok, chief financial officer with Cumberland Advisors, is emphasizing an inflation management strategy by swapping out of taxable municipal bonds into Treasury Inflation Protected Securities.

Bank Leumi USA will shorten duration by 0.5-years over the next two months on the view that the economy is bottoming out. Robert Giordano, portfolio manager of just under $2 billion in taxable fixed-income at the Manhattan-based subsidiary of Bank Leumi le-Israel, says the Bank will exchange fixed-rate securities or floaters, to hedge against a sudden rise in interest rates.

It's slooooooow. Many dealers were yawning last week as the slowest month for trading kicked off. Between the hot weather and quiet market, seems the foremost thing on their minds lately is taking it easy. One market player said half of his senior staff was out the door at 2:30 one afternoon last week. "I was yelling at them, 'Is this a holiday and no one told me about it?' They said they were off strategizing. I said, 'What, you were strategizing on a train to Connecticut?" Others were able to slip out with little fanfare. "I went for a three-hour lunch break today," a trader said, adding no search and rescue teams were dispatched for him.

First Union launched last Friday syndication of a $240 million credit for DRS Technologies, backing the company's acquisition of the Sensors and Electronic Systems business of The Boeing Company. Parsippany N.J.-based DRS, a defense electronics company, is buying SES for $84 million and is wiping out an existing $160 million loan with Mellon Bank arranged in 1998, noted Richard Schneider executive v.p., treasurer and cfo of DRS. Mellon will be on the new credit, Schneider noted, but he declined to say which other banks will be involved or why First Union was chosen to lead.

Radnor, Pa.-based Airgas has completed a $625 million debt refinancing package comprising a $225 million senior subordinated note offering and a new $400 million five-year unsecured revolver via Bank of America. Joseph Sullivan, treasurer, noted that the loan and notes combination was necessary to get the deal completed in an increasingly difficult bank debt market, with fewer banks around and revolvers harder to obtain. The old $790 million revolver, also led by B of A, was set to mature at the end of the year. Reduced by $150 million through a receivables program, the $400 million that was drawn will be taken out by the new financing, explained Sullivan.

After a slight recovery, Global Crossing's bank debt traded down last week and landed in the 92 range, which is down from 94 less than a month ago. The credit is continuing to drop on a weak telecom industry. "The bids were as low as 87 a few weeks ago," a dealer noted. "People are still freaked about telecom." Global Crossing's bank debt plummeted 10 points in mid-June, dropping from 97 to 87 in a single week. Calls to the company were referred to a spokeswoman, who did not return them.