Search results for

Deutsche Bank is pitching to customers a relative value credit default swap trade designed to profit from Tyco International's planned acquisition of the CIT Group, as well as changing technicals on Tyco. Last Wednesday, two-year credit default protection on Tyco was trading at around 110 basis points, while two-year CIT floating rate bonds were priced at LIBOR plus 45bps. These numbers should in theory be closer together following the merger. By selling the CIT floating-rate notes and selling two-year protection on Tyco, the investor can profit from the convergence of these levels, said Nichol Bakalar, v.p. credit derivatives research in New York.

End users are getting set to increase their credit lines with Dresdner Kleinwort Wasserstein once Allianz completes its acquisition of Dresdner Bank. Following the acquisition, credit rating agencies are likely to upgrade Dresdner. An official in the treasury department of Finnish energy company Fortum said the upgrade means the company should be able to increase its credit lines for derivatives products to the German bank by approximately 20%. Marcus Fedder, treasurer at the European Bank for Reconstruction and Development in London, expects to be able to boost its derivatives business with Dresdner as well.

DWS Investment, a mutual fund manager owned by Deutsche Bank, is buying a series of equity call options to help structure two guaranteed five-year funds it launched last week. Markus Klingler, fund manager in Luxembourg, said he is buying five-year call options on the Dow Jones Stoxx 50 for one fund and a five year basket call on the Stoxx 50, the Standard & Poor's 500, and the Nikkei 225 for the other. The two funds should total about EUR200 million (USD176 million), he added. About 15% of the investor's investment goes toward buying options that provide market exposure, while the balance goes toward buying bonds that provide the capital guarantee.

Carl Stewart, head of European marketing and structuring in London at RBS Financial Markets, has joined General Re Securities in the same role. He covers all derivatives asset classes, said Kevin Lecocq, managing director and global head of marketing and structuring. Stewart, who joined two weeks ago and reports to Lecocq, declined to comment.

Levels for five-year protection on International Paper tightened early last week, despite the company's announcement on March 29 that first quarter earnings would be lower than previously projected.

J.P. Morgan is ramping up its Japanese structured credit business to meet increased demand. To spearhead this effort, the bank has hired Mahesh Bulchandani, director and head of collateralized bond and loan obligations at Merrill Lynch in London, to head the business from Tokyo. Part of his mandate is to double headcount for the business to 12, said Jonathan Laredo, head of structured finance for Europe and Asia at J.P. Morgan in London. The group deals with both cash and synthetic products.

Investors bought two- and three-month Aussie dollar calls against the U.S. dollar last week, struck slightly out-of-the-money. The moves followed Wednesday's 50 basis point rate cut from the Reserve Bank of Australia. Over the course of the week, the Aussie dollar rose to USD0.488 from all time-record lows of about USD0.4775 the previous week, according to an options trader in New York. With the cut in interest rates and the Aussie dollar slowly crawling out of the cellar, one-month vol last week fell about a percentage point, hovering around 16% as DW went to press last Thursday.

Lehman Brothers is recommending clients enter bullish sterling call spreads and buy sterling knockout calls against the yen. Anne Sanciaume, foreign exchange options strategist in London, said the bank expects sterling to appreciate to JPY200 by year-end. Political pressure in Japan for a weak yen is mounting, according to Giovanni Pillitteri, foreign exchange strategist in London. Players there are looking for an export-led recovery, he added. While the yen is weakening against a broad array of currencies, the interest-rate differential between sterling and yen is higher than the interest-rate differential between the U.S. dollar and the yen, or the euro and the yen.

One-month risk reversals in the euro against the dollar switched to favor euro calls last week after the common currency appreciated against the greenback. Risk reversals moved to 0.2 in favor of euro calls on Wednesday from 0.7 in favor euro puts the previous week. The trading was mainly on the back of a rising euro--traders said that as the common currency crawled past USD0.90 on Wednesday, proprietary traders and hedge funds started buying 25-delta euro calls. Typically notionals were USD10-15 million. One-month implied volatility rose to 13.4% Wednesday from 12.95% the previous Wednesday as demand for options increased.

Federal Reserve Board easing, coupled with the rich valuations of mortgage-backed securities, has led Delaware Investments to shift into the corporate sector, according to portfolio manager Stephen Cianci. The Philadelphia-based fund has recently purchased over $400 million in corporate bonds, primarily in the single-A to BBB sector, on the view that the Fed's easing is creating a positive environment for credit products. Cianci characterizes his choices as heavily yield driven, with an average yield of 7%. He favors the energy and telecom sectors, because of the high-yield potential contained in these industries, but declined to give further details on corporate holdings.