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Bankgesellschaft Berlin plans to use over-the-counter equity call options to structure two guaranteed products aimed at retail investors looking to hedge their downside exposure. Gerald Klein, assistant director in the structured products department in Berlin, said these products are a reply to investors' demands for protection against a market crash while maintaining exposure to indices as part of long-term savings plans.

Asia Financial Holdings, a Hong Kong-based financial holding company with HKD14.25 billion (USD1.8 billion) in assets, plans to start writing covered equity calls in the coming months to generate premium. James Lee, investment analyst, said the company will initially look at using exchange-traded instruments but will consider using over-the-counter derivatives if pricing and liquidity are competitive. Lee believes the strategy will be profitable because upside potential in the U.S. equity market is limited in the near term. The company is talking to Morgan Stanley Dean Witter and Goldman Sachs as potential counterparties. Spokespersons at the securities firms did not return calls.

Jeff Zajkowski, managing director, corporate equity-linked products marketing at Goldman Sachs in New York, has joined Merrill Lynch in New York. A spokeswoman at Goldman declined comment. Officials at Merrill did not return calls for comment.

DuPont Teijin Films, a joint venture between science and technology giant DuPont and Japanese chemical producer Teijin, is considering using derivatives to hedge foreign exchange and interest-rate risk on its USD500 million loan portfolio. The company, which was formed in January 2000, believes it is now ready to take a more sophisticated approach to managing fx and interest-rate risk.

Standard Chartered is talking with four possible counterparties about entering an interest-rate swap with a maturity of up to seven years. "It's in the pipeline," according to Madhav Shankar, manager of derivative products in Mumbai. He added that corporates in India are looking for longer-term swaps to hedge outstanding balance sheet liabilities. Shankar believes the market for five to seven-year interest-rate swaps will develop rapidly, within the next few months. He declined to name the potential counterparties.

The Commodity Futures Modernization Act of 2000 authorizes trading, on a delayed basis, stock futures, meaning single-stock and narrow-based stock index futures, and options on such futures. As a result, the tax laws were also amended to make sure that stock futures would not get a tax advantage over equity products currently traded in both the over-the-counter and exchange-traded markets. With the CFMA changes to the tax laws, the tax treatment of stock futures is made similar to the current tax treatment of OTC and exchange-traded options on single stocks and narrow-based stock indices.

A unit of San Francisco-based Pegasus Aviation Inc. plans to enter an interest-rate swap on the back of an upcoming USD1.127 billion bond issue backed by aircraft leases. In the securitization, the leases are sold to a special purpose vehicle, PALS Holding Co. III, which in turn issues the bonds, said Chandra Gopinathan, associate analyst at Moody's Investors Service in New York. Moody's is rating the deal. Ratings on the tranches are expected to range from Ba2 to Aa2.

Credit protection on U.K. rail operator Stagecoach is expected to fall in price after the company reportedly won a new franchise to run trains in the U.K. A London-based trader said before the rumor began circulating, bond investors and banks with loan positions had been snapping up protection, largely because the company issued a profit warning earlier this month. The franchise, which would allow Stagecoach to run trains in the southwest region of England for 20 years, would give the company a guaranteed source of income. The trader estimates this could push pricing on five-year credit default swaps on Stagecoach to the mid 300 basis points range from 410bps as soon as the information is confirmed.

Axia Energy Europe, the entity formed by the merger ofKoch Energy Trading and Entergy Trading and Marketing, plans to set up a weather derivatives desk in London within the next quarter. John Polasek, head of structured products and origination for weather products in Houston, said the company is setting up a London-based desk to increase its presence in Europe. Axia has more time to look at new markets now that the merger between the Koch and Entergy trading operations is complete, he added.

Wells Fargo Bank is looking to hire one to two equity derivatives marketers/structurers over the next year in San Francisco. The three-strong trading, marketing and structuring team is beefing up to meet customer demand, said Hardy Hodges, head of equity derivatives in San Francisco. The group works with the bank's corporate client base, which consists of smaller and mid-sized corporates in the Western half of the U.S. Although it provides the full gamut of products, it tends to work mainly with hedging and monetization transactions, such as collars and variable pre-paid forwards, said Hodges.

Allmerica Asset Management is looking at buying MBS and select corporate credits, especially in the telecom sector, because declining interest rates and improved market conditions will lead to spread tightening, according to portfolio manager Ann Tripp. Tripp says the Worcester, Mass.-based fund just sold $5 million of 8.55% Abitibi notes of '10 (Baa3/BBB), in the paper sector, to take advantage of the attractive spreads in the telecom sector. One issue that she argues is compellingly valued is the recently issued 10-year 7.40% France Telecom notes of '11 (A1/A-), where she rotated into a $5 million position.

In addition to the sentiment effect from the equity selloff, the corporate bond market is also focused on the building calendar. Although the blockbuster deals are out of the way, absolute yields are low (even if spreads have widened) and corporate Treasurers may look to access the market before increased volatility or another down leg in prices restricts the primary market to only the largest benchmark borrowers. Whether corporates can withstand a more vigorous new issue calendar is not clear. On the positive side, investment grade debt continues to benefit from flows into fixed income and also from the reversal of the high yield convergence trade that dominated the first six weeks of 2001. Issuance continued at an anemic level for the week with only $8 billion in debt brought to market. Average credit quality at BBB remained low and average deal size was under $500 million for the second week in a row.