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Euro/dollar one-month risk reversals last week continued to flip in favor of euro puts/dollar calls as the euro slid further against the dollar in the spot market. The market showed a 0.4 bias in favor of 25-delta euro puts/dollar calls on Thursday from 0.2 in favor of euro calls/dollar puts eight days before. At the same time the euro fell to USD0.8375 from USD0.8622.

Tokyo-based derivatives boutique First Chicago Tokio Marine Financial Products plans to set up a credit derivatives desk and eventually intends to become a market maker. Kiyo Miya, head of marketing, said the firm recently started structuring credit-linked notes in Japan and sees the move to create a trading desk as a natural expansion of its business. Takeshi Yoshikawa, ceo, added that as a joint venture between a Japanese insurance company and U.S. bank is in a strong position to bridge the credit derivative markets in both countries.

Dresdner Kleinwort Wasserstein has started marketing what it believes to be the next generation of capital guaranteed equity-linked notes which offer 100% principal protection while also providing 100% upside participation. Matthias Schellenberg, head of over-the-counter equity derivatives sales for Germany and Austria in Frankfurt, said regulators recognize this structure as a guaranteed product.

Garban Intercapital, the largest swaps broker in the world, is looking to jump-start an electronic market in interest-rate swaps. The move would revolutionize the USD48.8 trillion over-the-counter interest-rate swaps market, which is currently dominated by voice brokers such as Garban.

U.K. hedge fundRAB Capital plans to use credit derivatives for the first time when it launches a European long/short high-yield fund next month. Louis Gargour, co-investment manager in London, said the fund will be able to use total-return swaps and single-name credit default swaps as well as borrow bonds from its prime broker, Bear Stearns, to gain short exposure to the fixed income market. He estimated 5%-40% of the USD100 million fund's capacity will be invested in credit derivatives, depending on opportunities and the macro-economic environment. The fund manager is free to execute derivatives trades with all the major houses and will chose counterparties based on price, he continued.

Although markets in Japanese equity derivative products started to appear at the end of the 1980s, due to the lack of a complete regulatory framework general knowledge about these products remained very limited in Japan until the start of the Japanese Big Bang in 1998. During most of the 1990s, domestic players remained virtually absent from the market, except for a handful of corporate end-users dealing in complex hybrid products. Japanese banks and securities companies rarely participated in these transactions and, as a result, foreign investment banks used the know-how that they had gained in foreign markets in order to acquire a quasi-monopoly on offshore equity derivative transactions and domestic hybrid structures.

Hong Kong-based Investec Asset Management, with USD500 million in assets under management, is in talks with Hong Kong's Securities and Futures Commission about creating mutual funds that will use over-the-counter equity derivatives. Stewart Aldcroft, managing director in Hong Kong, said it aims to roll out the funds later this year to meet strong interest from investors. Investec Asset Management, which primarily invests in Hong Kong and Chinese equities, will look to use options to leverage exposure, he noted.

Lehman Brothers has hired Giancarlo Saronne, a credit derivatives structurer and marketer covering the Italian market at J.P. Morgan in London. Officials at Lehman in London did not return calls. Calls to J.P. Morgan were referred to a spokeswoman in Milan, who was unable to provide information.

Credit default swap spreads on troubled telecommunications and electronics outfit Marconi doubled last week and offers dried up as trading in the company's shares was suspended. Traders said the price of five-year protection widened from 150 basis points/170 bps Wednesday to trade at 350bps on Thursday. It nudged back to 280bps/330bps Friday. Standard & Poor's and Moody's Investors Service put Marconi on credit watch Thursday following a string of bad news from the company, including a disappointing price it generated in the sale of Koninklijke Philips Electronics. S&P rates the company triple-B plus and Moody's rates it A3.

Goldman Sachs executed some EUR10 billion (USD8.47 billion) of euro interest-rate swaps and several billion euros (notional) of basis swaps a week ago Friday in the London market. The move sparked speculation that Goldman was positioning to provide a hedge to cover the financing of a cross-border M&A transaction, widely believed to be on behalf of German utility E.ON. The trades "looked and smelt like an investment banking deal," according to City swappers. E.ON is known to have a substantial war chest, is believed to be interested in making a U.S. acquisition and has a relationship with Goldman. Officials and press officers at Goldman Sachs did not return calls. E.ON officials declined to comment.