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Merrill Lynch has added credit derivatives pricing and research to its on-line trading site, MLX. An official at Merrill Lynch said the service offers pricing on 150 U.S. names and expects that number to double when European names go live in the next couple of weeks, soon to be followed by Asian names. The site gives clients indicative prices for credit default swaps and asset swaps, as well as research, a pricing calculator to mark positions to market and credit derivatives documentation. There are no plans to add execution because of the difficulties connecting the site to other systems and the lack of customer demand.

Sachsen LB Europe plans to use credit derivatives for the first time for investment and hedging by year-end if it receives approval from its parent Landesbank Sachsen Girozentrale. Adrian Fitzgibbon, managing director of Sachsen LB Europe in Dublin, said it is discussing the risk management, systems and legal framework needed to use credit derivatives with its parent at the moment. He declined all further comment. Officials at Landesbank Sachsen Girozentrale also declined comment.

PointWorth Management Private is in the process of launching two hedge funds that will take long/short positions in equity markets and may use exchange-traded or over-the-counter derivatives. Dennis See, ceo in Singapore, said the Boulevard Japan and Boulevard Global funds will close at USD100 million each. "We have been looking at futures, options and OTC swaps," he said, adding, "we are not going to be in that space in a big way." In particular, the investment manager is wary of using OTC derivatives because, compared to exchange-traded products, there is no transparency, they are not cheap and they entail taking on counterparty risk.

Twenty-five delta one-month risk reversals showed a stronger bias in favor of euro calls/dollar puts in the last two weeks after the euro started to strengthen against the greenback. Traders said market makers were snapping up risk reversals in anticipation of further euro upside. The one-month risk reversal jumped to 0.81 in favor of euro calls/dollar puts Wednesday from 0.2 two weeks ago. Implied volatility shot up across the board. One-month vol was 12.1% Wednesday from 10.85% two weeks ago as the euro appreciated to USD0.8796 from USD0.8552 in the spot market.

Stone Ridge Investment Partners plans to shorten duration by 2.5% if the 10-year Treasury closes with a yield at or below 5%: it would cut duration to 4.39-years from its current 4.5-year level. Last Monday, the 10-year was at 5.10%. David Killian, portfolio manager, says he would buy two- and 30-year U.S. Treasuries, selling intermediate maturity Treasuries to shorten duration. He says he has no idea whether yields will fall below 5%. He believes the Federal Reserve has mostly finished easing rates, because the most recent cut was only 25 basis points instead of the 50 many had expected.

What does it take to be a trader? A few market players with a little downtime offered some qualifications. According to one, you must be able to juggle three questions at once and have a great short-term memory. "You don't have to be the best credit guy, and a psychology degree doesn't hurt," he said. Another dealer was a bit more succinct: "You have to be really, really smart in your own mind."

Ziegler Investment Services Group will swap $70 million, or 10% of its overall portfolio, from Treasuries into corporates, on the view that corporate spreads should eventually begin to tighten, forcing Treasuries to underperform, according to portfolio manager Brian Andrew. Andrew says he is anticipating an economic recovery in the last quarter, which is why he's seeking to commence his rotation immediately. He says that he will concentrate his purchases on the five- to seven-year sectors because he expects yields to rise on 10-year and longer maturities, as the intermediate range should remain stable or tighter.

Margaret Patel, portfolio manager of a high-yield fund with Boston-based Pioneer Investment Management, says her firm is concentrating on four sectors: energy, healthcare, paper and forest products and technology. She adds that her firm is staying away from high-yield telecom bonds, due to the continued credit deterioration in this sector. An internal policy bans investments in the gaming sector.

Los Angeles-based Trust Company of the West has been adding to defensive high-yield sectors such as cable, media, broadcasting and gaming. Melissa Weiler, portfolio manager in the $5 billion high-yield group, says companies in those sectors are asset-rich and have relatively stable cash flow. Further, they receive a lot of equity funding, placing bondholders in a relatively attractive position in the capital structure. For example, TCW purchased PrimeMedia 87Ž8% senior notes of '11 (Ba3/BB-), when they fell from $95-96 to the low 90's after announcing an acquisition earlier this month. When it became clear that the acquisition would be funded through equity, the paper rebounded, and was trading at $96 last week. TCW recently bought new issues by Quebecor (B2/BB-) and the Mediacom 11% notes of '13 (B2/B+). It also picked up some Charter Communications notes of '11 (B2/B+) when those bonds dropped about two points on rumors that the firm would try to compete with Comcast for AT&T's cable business.

Is The Fed Still Too Tight?

Van Kampen Investments has laid off its Oakbrook Terrace, Ill. taxable fixed-income team and shifted the assets they manage--some $6.5 billion divided between several high-yield, government, and investment-grade funds--to fixed-income managers at Miller Anderson & Sherrerd (MAS), in West Conshohocken, Pa., according to a Van Kampen spokeswoman. The managers laid off as a result of the changes are Ted Mundy, manager of several government funds, investment-grade manager Kelly Gilbert, and high-yield manager Robert Hickey referred all calls to the firm spokeswoman. Van Kampen and Miller Anderson are subsidiaries of Morgan Stanley Investment Management. The spokeswoman says the move was not a cost-cutting measure nor related to poor performance, but rather was done to consolidate the firm's fixed-income operations in the hands of the managers with the most resources.