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Traders piled into euro calls/yen puts last week after a jump in euro/yen spot to JPY109 on Thursday from JPY106 on Monday. Demand for two-week to one-month options pushed the risk reversal to 0.7 in favor of 25-delta euro calls/yen puts on Wednesday from 0.2 favoring 25-delta euro puts/yen calls a week ago Friday. Traders said risk reversals flipped so quickly because market makers had been short euro calls before the rally as the euro had been depreciating against the yen.

U.K. pension funds are gingerly turning to the over-the-counter derivatives market for a quick and easy way to reduce volatility and switch funds into fixed income, according to derivatives marketers in London. Among the most popular strategies, pension funds are selling out-of-the-money equity calls or entering total return swaps where the pension fund pays an equity index and receives a fixed income index, said Mark Versey, a structured derivatives salesman at Deutsche Bank.

At the end of last year, the four primary federal banking regulatory agencies (the Federal Reserve Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and Office of Thrift Supervision) issued a proposal to amend their capital standards for banks, bank holding companies and savings associations to reduce the risk weighting applied to claims on, or guaranteed by, qualifying securities firms. If adopted, this proposal could have a significant effect on the credit derivatives market.

Deutsche Bank clients have been selling April maturity puts on Vodafone shares and buying calls linked on the mobile phone company's stock with maturities between July and year-end at the bank's recommendation.

Zurich Capital Markets plans to launch a range of alternative investments products, according to Francisco Portillejo, managing director in London. He characterized the firm's plans in alternative investment products as "big time," declining all further comment. Zurich Capital, which is the financial structuring unit of Zurich Financial Services, recently became a member of the Alternative Investment Management Association.

ICC Capital Management has increased the amount of duration Treasuries contribute to its fixed income portfolio by reducing duration exposure from agencies, on the view that spreads between agencies and Treasuries have tightened from last year's highs. Two weeks ago the Orlando, Fla.-based firm brought to neutral the duration of Treasuries in the portfolio at 2.05 years from 0.5 years, but also kept agency exposure high, at 2.25 years.

Advantus Capital Management has been swapping into investment-grade corporates, and out of Treasuries and pass-throughs, on the view that the market has reached the trough of the credit deterioration cycle, according to portfolio manager Wayne Schmidt.

D.L. Carlson Investment Group is in the process of selling its 10-year agency paper and buying three-year corporates on the view that the Federal Reserve is in an aggressive easing mode and the front end of the yield curve will steepen. Doug Robbins, who manages $200 million for the Concord, N.H.-based firm, declined to discuss specific credits, but says he likes finance and banking paper because it benefits from the Fed's easing policies. He believes that by mid-summer the Fed will cut rates another 100 basis points, bringing the Fed Funds rate to 4-4.5%.

Turner Investment Partners will buy two to five-year paper and sell its eight to 20-year Treasuries, STRIPs, TIPs and 6-6.5% pass-throughs in the third quarter, when it expects the economy to begin improving. Declining to comment on how much of an allocation change he will make, Jim Midanek, who manages $700 million for the firm, concedes "this will happen once the excessive easing expectations come out of the market and the market backs up across the board."

The Warnaco Group's bank debt traded at 43 last week, with market watchers attributing the levels to disappointing retail sales over the holidays. Levels are up slightly from 42, and dealers noted that stock levels and the bank debt are out of sync. Dealers say they're uncertain as to why. "The stock is way too high for the debt -- $1.50 to $4--so something is wrong," one market player observed. "Either the bank debt is too cheap or the equity is overvalued." Warnaco, based in New York City, markets bras to discount and department stores. William Finkelstein, cfo, would not comment.

Arrow Electronics this month signed two new credits, replacing smaller deals that were about to expire. The company closed a $625 million, 364-day facility and a $625 million, three-year facility and Robert Klatell, executive v.p., and Ira Birns, treasurer, say the new facilities are slightly larger than the previous ones to accommodate the company's growth. Revenue was $9.3 billion in 1999 and $12.9 billion in 2000. "This is to fund organic growth. We have made acquisitions, but that's really not an imperative with these facilities," said Klatell.