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Pioneer Alternative Investment Management plans to launch a convertible arbitrage fund that will use over-the-counter derivatives. Peter Cripwell, cio in Dublin, said the fund will use credit swaps, interest-rate and equity derivatives to isolate the embedded options in convertible bonds. Cripwell declined to give an example of a typical strategy but added, "I have no problem with the manager taking significant positions using derivatives." The fund will execute its derivatives transactions with Deutsche Bank, its prime broker.

Tokyo-based Shinsei Bank, with USD76 billion in assets, plans to set up a derivatives market making department in the coming months, beginning with an interest-rate desk and expanding into equity derivatives, in an effort to boost its capital markets presence. To lead the effort, Shinsei has hired Fujita Hideyuki, an interest-rate derivatives trader at Daiwa Securities in Tokyo, said a market official. Hideyuki, who starts next month, could not be reached.

Tokyo-based Daido Life Investment Trust Management, with over JPY300 billion (USD2.3 billion) under management, is considering investing in equity-linked notes to provide enhanced yield. Ichiro Irii, fund manager, said he will consider purchasing ELNs based on Japanese shares for the trust's convertible bond fund. Price is a key consideration in using these instruments, he continued, declining to elaborate on a timeframe or target price range. Daido, which runs equity and fixed-income portfolios, typically uses Nikko Salomon Smith Barney, Daiwa Securities and the Mizuho Group as brokers.

J.P. Morgan is believed to have jumped into the London interest-rate swaptions market in size last week ahead of expectations that the European Central Bank would trim interest rates at its meeting last Thursday. Over EUR1 billion (USD881 million) of three-month options to enter 10-year interest-rate swaps traded last week, according to market officials. A trader at J.P. Morgan said he is not permitted to comment on market activity.

Macquarie Bank has hired Frank Sutrisno, v.p., local markets fixed-income trader at ING Barings in Hong Kong, as a structurer in the structured products group in Sydney. He started in the new position last week and reports to Gary Vassallo, head of derivatives risk in Sydney. Vassallo said he is looking to build up a team for the bank's structured products group. Vassallo continued that there would be further hiring on the horizon but nothing immediate. He declined to elaborate.

Credit default swap spreads on Olivetti tightened 30 basis points to 130bps last week as traders absorbed the news that its debt was going to be paid down. The debt pay down will come as a result of Pirelli and Edizione Holding acquiring a 23% stake in Olivetti for EUR7 billion (USD6.2 billion). Traders said credit default swap spreads tightened to Thursday from 160bps a week before. Telecom Italia, a sister company, also tightened but by only 10bps to 95bps/105bps.

Market makers last week were entering calendar spreads as a low cost method to gain exposure to a rising euro against the dollar. Thomas Devine, foreign exchange options trader at Dresdner Kleinwort Wasserstein in New York, said a popular trade was to sell one-week euro puts/dollar calls with strikes at around USD0.86 and buy three-week euro calls/dollar puts with strikes at around USD0.895. This allows the trader to gain exposure to a rising euro but not suffer from time decay caused by owning volatility. Time decay plays an important role in these options because the euro is appreciating slowly, he added. The euro appreciated against the dollar to USD0.8806 Wednesday from USD0.8755 the previous Friday. But one-month implied volatility remained stable at around 11.5% during the week.

American United Life Insurance will invest the cash flow it generates from its insurance business into single-A and triple-B corporate bonds in order to pick up some yield while remaining in the investment-grade credit spectrum, says Kent Adams, portfolio manager with the Indianapolis-based insurance company.

Sell-side energy analysts say investors are overlooking a great buying opportunity in notes issued by WCG Note Trust, a debt-issuing entity created by the Williams Companies and its former subsidiary, the Williams Communications Group. Though coupon payments on the notes are paid by Williams Communications Group, they are backed by the Williams Companies, a natural gas pipeline company. The $1.4 billion 8.25% notes of '04 (Baa3/BB+) were issued in March at 400 basis points over Treasuries and were trading at 370 last week. Slightly higher-rated paper from other pipeline companies such as Enron and El Paso trades well inside those levels. Enron 6.62% senior notes of '05 (Baa1/BBB+) were at 150 over the curve last week and El Paso 8.6% of '03 (Baa2/BBB) was at 140 over. The Williams Companies 7.5% notes of '31, which at a rating of Baa2/BBB- is a notch higher than the WCG notes, were at 215 off.

High-yield paper and forest products sell-side analysts are questioning whether investors went far enough in responding to Doman Industries' (Caa1/B) poor earnings report late last month. One says that though falling pulp prices have hurt earnings at a number of companies, Doman took an even greater hit than many had expected. Doman also failed to capitalize on a strong second quarter for lumber prices. Overall, it saw operating cash flow, as measured by EBITDA, fall by 19.2%, while at Tembec (Ba1/BB+) EBITDA fell by only 8.7%. The analyst expects increased corporate layoffs to slow the number of new homes being built, which will send the price of lumber below the average second quarter price of $503 a ton; that will probably cause a revenue shortfall that would send Doman paper below its current levels. The Vancouver, Canada-based Doman saw its 8.75% notes of' 04 fall from $64 before the earnings call to $59 last week. The analyst says they could go to the low $50's later this year.

Cavanaugh Capital Management may reduce its U.S. Treasury allocation by as much as 8% ($26 million) after the Federal Reserve's Aug. 21 meeting. Megan Brune, a portfolio manager at the Baltimore, Md. money manager, says the firm would look to sell long-term Treasuries if Fed officials and economic data indicate the economy is improving. An improving economy would likely spur investors to transfer assets out of bonds and into stocks, Brune says. She adds that Cavanaugh would probably shift the assets into seasoned mortgage-backed securities with a relatively low prepayment risk, such as Freddie Mac gold pool balloon mortgages.