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Traders bought one-week Australian dollar calls against the U.S. dollar Wednesday after one-week implied volatility rose by a percentage point in one day to 15%, to bet on an anticipated rise in the Aussie dollar. The rise in vol, in anticipation of Wednesday's 50 basis point interest-rate cut by the U.S. Federal Reserve, was expected to continue, said traders in Sydney and Melbourne. The Reserve Bank of Australia is not expected to cut interest-rates as aggressively when it meets tomorrow. This should help the Aussie dollar appreciate against the greenback, they said.

Market makers were buying euro calls/dollar puts last week in an attempt to cover two euro/dollar options positions that traded last month, estimated at USD2-4 billion (notional). Deutsche Bank and Bank of America reportedly bought the options, and some traders said these positions were on behalf of customers. Traders at Deutsche Bank and BofA declined comment.

Zurich Capital Markets has hired a pair of senior derivatives bankers as part of its effort to establish an over-the-counter powerhouse in Sydney. Stephen Conrad, head of structured trading and derivatives at Macquarie Bank in Sydney joins this week, to be followed by Richard Howes, co-head of agricultural derivatives at Macquarie in Chicago, according to market officials. Both are veterans of Bankers Trust, as are most of the senior capital markets officials at Zurich.

TD Securities is looking to hire two to three U.S. institutional derivatives marketers focusing on structured credit products within the next six months. The bank recently hired Paula Klara, senior v.p.-credit derivatives marketing and structuring at Donaldson, Lufkin & Jenrette in New York, to head up the group, which has two other marketers, said Joe Hegener, managing director, global head of high-yield credit derivatives, collateralized debt obligations, and co-head of loan trading and sales in New York.

Traders sold six-month at-the-money Taiwan dollar/U.S. dollar straddles Thursday as an appreciation in the Taiwan dollar pushed down volatility on the pair. One-month implied vol fell around a percentage point to 4.3%/5.3%, said a trader in Singapore. This happened as the Taiwan dollar appreciated to TWD32.365 at the close of trading Thursday from TWD32.397 Wednesday, he said. Volatility tends to drop when the Taiwan dollar appreciates against the greenback, he added.

Five-year credit default swap spreads on Australian telecom company Telstra Corp. tightened last week, partly on the back of a positive change in sentiment among equity analysts, said traders in Sydney. Five-year credit default swaps on Telstra traded twice Monday at 67 basis points and 68bps, compared with Jan. 19, when it traded at 73bps, traders said. Telstra's capital expenditure seems to have bottomed out recently, according to analysts' reports, helping its stock rally to AUD7.12 (USD3.93) last week from a low of around AUD6 in August, one trader noted.

Foreign & Colonial is launching a retail investment fund this month that will use listed and over-the-counter currency and equity derivatives. The fund, dubbed Blue, is a low-risk vehicle that will invest in low-coupon bonds and the Dow Jones Euro STOXX 50. Stephen Dolbear, director and head of derivatives in London, said it will hedge equity risk with futures and options and swap some of the foreign exchange risk on its bonds into sterling. Dolbear said it is likely to use OTC equity options when it wants to use a barrier option, or if it needs a maturity or strike not available in the listed market.

Pugh Capital Management will add about $20 million to its telecom and auto exposures over the next few months and sell agencies, on the view that the corporates are liquid and will bounce back in an economic recovery. It is mainly supply issues driving down the price of telecom, says Mary Pugh, who manages $450 million in taxable-fixed income for the Seattle, Wash.-based firm. Declining to discuss specific credits, she says the telecom and auto sectors are large parts of the indexes, and their spreads have widened about 100 basis points over the last year.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Several fixed-income clients of Standish Ayer & Wood, citing poor performance due to an overweight to corporate bonds in its active core and core-plus bond strategies, are ending their relationships with the manager, according to BW sister publication Money Management Letter. The City of Austin Employees Retirement System and the Baltimore County Employees Retirement System, both recently indicated that they will be ending the relationship with the manager on the core-plus and active core bond mandates, worth roughly $220 million and $225 million, respectively. And most recently, the Anchorage (Ark.) Police and Fire Retirement Board terminated the manager from its $40 million fixed-income account and consolidated the funds with a $90 million account managed by incumbent manager Columbia Management. Additionally, the manager was let go last March by the Maine State Retirement System's bond account, a mandate valued at some $200 million. Calls placed to Thomas Sorbo, sales director at Standish Ayer & Wood in Boston, were not returned by press time.

APS Asset Management has been swapping out of Treasuries and agencies and into low investment-grade corporates, which currently show spreads far above historical norms. Chris Caputo, head of a $300 million taxable fixed-income portfolio, points in particular to spreads on the intermediate-maturity paper of such retailers as J.C. Penney (Baa3/BBB-) and Sears Roebuck (A3/A-), which at one point late last year were 600 to 1,000 basis points over Treasuries. Even today, he says, they trade at 90-120 basis points over the curve, roughly double their historical average. "They're screaming to be bought," he says.