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Strong market appetite for European residential MBS helped Italian bank Bipop-Carire's Eu590m first public securitisation. ABN Amro was bookrunner. Upgrade SpA was backed by performing first lien residential mortgages originated by Bipop and its subsidiary Fineco Banca.

Despite increased pessimism and downgrades of several collateralised debt obligations, several European arbitrage deals are expected to close this quarter -including the first ever sterling arbitrage vehicle next week. UK-based Prudential M&G is preparing to issue £313m of notes with Panther CDO BV, via Morgan Stanley Dean Witter.

Salomon Smith Barney has created a global interest-rate and derivatives products group to put trading under the same roof as structuring to enable the departments to leverage off each other.

A raft of Australian investment management companies, including Royal Sun Alliance and Tyndall Australia, are on the verge of using their first domestic interest-rate swaps. Others, such as BT Funds Management, expect to increase their use of the product. Standard bond indices in the region are shifting to include more floating rate paper, making fund managers keen to better manipulate maturity and yields on corporate bonds in their portfolios.

Five-year protection on Bank of America fell from 79bps in the beginning of December to 70bps (with restructuring) early last week. Bank of America announced early last week it had met reduced earnings expectations for the fourth quarter. It also priced USD3 billion 10-year, fixed rate subordinated note, which was well received in the market, giving protection sellers more confidence in the name. BofA and other financials widened last month as they reduced earnings expectations and players feared a slowing economy would influence the ability of borrowers to pay down loans.

Market makers expect highly rated corporates to flood into the credit derivatives market as both end users and market makers if the proposed Basel Capital Adequacy Accord comes into effect.

Bank of America plans to hire credit derivatives traders, structures and marketers for its London office. Paul van der Maas, managing director and head of structured credit products and emerging market structured products for Europe in London, said the bank wants to hire six individuals to support its growing credit derivatives, emerging market structured products and collateralized debt obligation business.

ProFunds, a mutual fund manager with some USD2 billion under management, is today launching a group of index funds that will use over-the-counter equity derivatives. The funds are expected to bring in USD2 billion in the next six months, said Michael Sapir, chairman and ceo at ProFund Advisors in Bethesda, Md.

Dollar/yen one-month implied volatility jumped to 13.4% on Wednesday from 11.25% the previous Friday after the dollar appreciated to JPY118 and traders purchased dollar calls.

German cooperative DG Bank is considering using credit derivatives to structure two EUR100 million (USD94.5 million) synthetic collateralized debt obligations. It hasn't ruled out buying the underlying bonds in the cash market, but probably will use credit default swaps because the spreads are more attractive, says Detlef Giebe, head of corporate and bank bonds trading in Frankfurt.

Guaranteed products on baskets of hedge funds are set to be the dernier cri as demand for hedge fund products rises. Mehraj Matto, co-head of fund derivatives at BNP Paribas in London, estimated the market could increase four fold over the next year. Investors are keen for the products because the level of returns in equity was disappointing last year and hedge funds can offer better returns. Guaranteed products open up hedge funds to a number of players that could not otherwise access them, such as some pension funds.