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Dresdner Kleinwort Wasserstein is structuring capital guaranteed products with long-dated zero-coupon bonds in a novel twist designed to provide a fatter potential payout on the option component. Matthias Schellenberg, head of equity structured product sales for Germany and Austria in Frankfurt, said the issue price for a 30-year zero is approximately 20% of the redemption value whereas the price for a three-year zero is about 80% of the redemption value. By purchasing the cheaper 30-year zero, Dresdner can spend more on an option to provide upside participation.

Deutsche Bank is believed to have pocketed over EUR100 million (USD89.4 million) after reportedly squeezing repo traders in a massive interest-rate futures position. The German bank was able to take advantage of illiquidity in the cheapest-to-deliver bond that would have been used to settle a long futures position it entered, in a move that drew sharp criticism from some City rivals. Repeated calls to Deutsche Bank's trading desk and to spokespersons were not returned.

Dresdner Kleinwort Wasserstein is preparing to offer options on alternative investments within the next couple of months. Robin Farrell, head of the alternative investments group in London, said demand for these products has picked up recently because there is a greater impetus to invest in hedge funds in a bear market. The group already writes guaranteed notes on mutual funds and Farrell said it is the next step to offer the same products on baskets of hedge funds. Options on hedge funds are harder to structure than mutual funds because the underlying is less liquid.

Several foreign banks, includingStandard Chartered Bank, are pitching for a piece of a multimillion dollar cross currency interest-rate swap that Korean Asset Management Co. (KAMCO) is expected to enter later this year. KAMCO is looking to enter a series of swaps to convert floating rate loans totaling USD1 billion into synthetic Korean won-denominated fixed-rate liabilities, according to swappers in the local market.

Germany-based heavy industrial group Thyssenkrupp has entered into USD600 million (notional) of interest-rate swaps to hedge a series of floating rate loans against possible U.S. interest rate hikes. Rainer Verhoeven, junior treasury manager in Düsseldorf, said the five-to-eight year swap-rate is now below the company's funding rate so it has decided to enter swaps to hedge the $800 million in loans. He declined to reveal the company's funding rate.

Crédit Agricole Indosuez is considering offering weather derivatives to its clients. Pierre Valentin, head of derivatives at CPR, a 92%-owned subsidiary of CAI in Paris, said it is researching weather patterns and looking at how to price products. "This is a big job," he added, declining to reveal when it might enter the market.

The International Swaps and Derivatives Association has set up a credit derivatives market practices committee whose first goal is to sort out the debate over restructuring as a credit event. Although ISDA has tried to help sort out the debate over restructuring with a profusion of committees, task forces, and working groups, this group is different: it's staffed mainly with traders and portfolio managers rather than lawyers, said Blythe Masters, managing director and head of North American structured credit products and asset-backed securities at J.P. Morgan in New York and co-head of the group. The committee also has a deadline it is seeking to meet, which is the beginning of April, in time for the ISDA Annual General Meeting.

E.ON Trading and MVV separately are planning to use weather derivatives for the first time to hedge exposure on their electricity and natural gas trading books. Oliver Podehl, an electricity trader responsible for the weather derivatives project at E.ON Trading in Munich, said it has not hedged weather risk previously because of manpower limitations. He expects at least two more power traders to join the 20-25 strong team in the next month and the long-term plan is to double this number. He declined to give a time frame for the doubling. The extra personnel will allow E.ON to trade more products. The company also needs to finalize internal pricing tools and risk management mechanisms before it starts trading.

Credit default swap spreads on five-year protection on Tyco International widened by 5-10 basis points last week to 125bps on Tuesday after Tyco announced it had agreed to acquire CIT Group Inc., a financial-services concern based in New York, for USD9.2 billion. The equity markets reacted negatively to the news, pushing the company's share price down 8%, while the credit markets sent the price of protection up to match its five-month high. A credit default swaps trader in New York said that many analysts were not sure how well Tyco, a manufacturing and service company based in Exeter, N.H., would be able to manage a company that has a completely different profile. "There's a certain degree of market skepticism about their ability to integrate the acquisition," he said. He added that the price of protection on Tyco should return to the 105-110bps range in the next week, however, as the rest of the market calms down from last week's turmoil.

Lehman Brothers is pitching to customers a strategy designed to profit from low near-term equity volatility and an expected longer-term upswing on the Nasdaq 100 index. Paul Lieberman, v.p., equity derivatives and quantitative research at Lehman in New York, said the firm recommends selling short-term at-the-money, or nearly at-the-money, straddles, to finance the purchase of longer-dated at-the-money, or nearly at-the-money, calls. The investor wins if the index stays range bound in the near term, and then rises. The straddles and calls can be purchased and sold via the over-the-counter or the listed market.