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HSBC recently entered what is believed to be the longest-dated rupee interest-rate swap, and the transaction could open the way for further deals. Tarun Mahrotoi, treasurer in Mumbai, said HSBC entered a INR250 million (USD5.3 million) swap with a local manufacturing firm looking to diversify its liability portfolio. In the swap the corporate receives a floating rate based on the yield of one-year Government of India bonds, which is annually reset. At present the yield to maturity is 8.44%. Mahrotoi declined to name the corporate.

Foreign exchange traders were last week piling into the market to hedge short exposure to a USD2 billion (notional) one-month dollar call struck at USD121.30 that matures Thursday. The buyer of the call, believed to be Goldman Sachs, wins if spot trades past the strike. This looked increasingly likely Friday as the yen swooned to USD120.70, leading banks to firm up their hedges. Officials at Goldman Sachs declined comment.

Air Products & Chemicals will likely consider issuing commercial paper or a medium-term fixed-rate bond that it can convert to a floating-rate liability via a swap, according to Greg Weigard, assistant treasurer in Allentown, Pa. The international industrial gas and chemical company is looking to increase its percentage of floating-rate debt to 40-45% from approximately 25%, he said. It is looking to refinance $100 million of A3/A-rated bonds that mature in August.

KBC Bank & Insurance has set up an alternative investment company and plans to launch a convertible arbitrage fund next month as its inaugural product.

Hana Bank is looking to increase its use of structured products, including credit-linked notes and convertible asset swaps to boost margins. Tae Young Li, general manager in Seoul, said the bank recently entered a USD20 million (notional) interest-rate swap with Credit Suisse First Boston on the back of a Korean convertible bond it purchased.

Bayerische Landesbank plans to securitize between EUR1-2 billion (USD850 million-USD1.7 billion) of its commercial mortgage portfolio using derivatives and is currently looking for an investment bank to lead manage and structure the deal. Klaus Distler, first v.p. and head of securitization in Munich, said Bayerische is preparing this deal to reduce regulatory capital and remove assets from its balance sheet. It has opted for a synthetic transaction because it is cheaper and quicker than a cash deal.

The Central Bank of Hungary's recent move to widen the band in which the forint trades to 15% from 2.25% is seen as a step towards the development of a liquid derivatives market, according to Budapest market watchers.

Credit Lyonnais has revived its role as a structurer of warrants on baskets of B shares listed on the Shenzhen and Shanghai stock markets, four years after becoming the first firm to put together such a deal. Eddie Tam, director, equity derivatives in Hong Kong, said the move is in response to a resent surge in daily turnover. He believes the market for warrants on B shares has lain dormant since CL structured the first trade in 1997 because of poor liquidity.

Jackson Chou, credit derivatives trader at Morgan Stanley in Tokyo, has recently left the firm. Richard Thomas, managing director at Morgan Stanley in Tokyo, said Chou has resigned, declining further comment. Chou could not be reached.

Norwegian export credit agency Eksportfinans plans to issue callable Japanese yen-denominated medium-term notes and convert them to synthetic dollar floating-rate liabilities using cross-currency interest-rate swaps. Anders Bruun-Olsen, senior v.p. and head of the funding department in Oslo, said the agency has USD800 million of funding left to raise before year-end. The agency plans to tap the Japanese market to take advantage of strong demand for triple-A rated debt and because it has a good reputation in Japan.

Convertible bonds are corporate bonds which pay the holder regular coupons and may be converted into the underlying shares at the holder's discretion. Here we focus on their exposure to the credit of the issuer. At low equity prices, when the equity optionality is worth little, the convertible is essentially a pure bond and it is clearly correct to price (i.e. discount cash flows) with the full credit spread of the issuer. However, it is generally held that a company's ability to issue stock is not strongly influenced by its credit rating. Accordingly, the value contributed to the bond by its conversion rights should not be subject to the same risky discounting as the fixed payments.

Tullett & Tokyo Liberty plans to expand its recently launched credit derivatives brokerage desk in Singapore in the coming months, said John Rabey, manager of the Asia-Pacific credit derivatives desk. The firm will likely double headcount on the desk to six if volumes continue to grow. Tullett brokers protection on Asian credits, including Japanese and Australian names, from the Singapore desk. Credit default swap trading makes up 99% of the desk's business, he added.