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Credit default swaps on Hutchison Whampoa traded actively early last week after its subsidiary Hutchison Whampoa International announced Feb. 2 it would issue USD1.5 billion in Yankee bonds to refinance existing debt. Five-year credit default swap pricing on the credit ballooned on the day of the announcement by 15 basis points to 145 bps, before settling in to around 133bps by Wednesday, said traders and brokers in Singapore and Tokyo. Five-year credit default swaps traded several times Feb. 2 and last Monday, at 145bps and 135bps respectively. It then traded at 131bps Thursday.

The Reserve Bank of India is expected to make a decision toward the end of the month on whether to allow derivatives brokers to charge for their services. In 1992 brokers in India were forbidden from charging commissions following a series of scandals in which brokers violated regulations and raised concerns of their manipulating the markets, saidB. Ratnam, chief executive officer at theFixed Income Money Market and Derivatives Association in Mumbai. Cash equities and foreign exchange brokers were exempted from this regulation. With derivatives markets in India heating up, players have been pushing for derivatives brokers to be exempted as well.

Brian Grover, v.p., equity derivatives sales focusing on hedge funds at J.P. Morgan in New York, has taken the new position of director, head of over-the-counter equity derivatives sales to institutional investors at Credit Suisse First Boston.

AMP Henderson Global Investors (NZ), with AUD10.5 billion (USD5.7 billion) under management, plans in the next couple of weeks to become one of the first New Zealand asset management companies to use credit derivatives. It hopes to boost returns and diversify its risk profile by selling protection on Kiwi and Australian credits, using first-to-default and credit default swaps, said Chris Wozniak, head of fixed interest in Wellington.

A group of ex-Merrill Lynch equity derivatives traders is preparing to launch a market-neutral equity derivatives hedge fund. The fund, dubbed Titan Volatility Fund, will have a net long vol bias but will not take directional bets on the market, said Steve Cohen, chief operating officer in New York. Russell Abrams is the founder of the fund, and former co-head of U.S. equity derivatives trading and convertible arb at Merrill in New York. Danny Waldron and Ragu Raghavan, both senior equity derivatives traders at Merrill, joined the fund last week. The three were unavailable for comment late last week.

Taiwan Life Insurance, with USD2 billion in assets, is preparing to use derivatives for the first time. It plans to swap fixed-rate U.S. dollar-denominated debt to fixed-rate Taiwan dollars, in its first currency swap, said Johnson Lai, head of finance in Taipei. Dropping yields on domestic debt are forcing the insurer to increase its overseas bond allocation, which will leave it with larger foreign currency exposure, Lai said.

TFS has set up a European weather derivatives brokering desk. Weather derivatives broker Jason Hall will work London hours from Stamford, Conn. for the next couple of weeks before he moves to London to run the operation from there, according to Kendall Johnson, senior v.p. in Stamford. The desk will offer heating degree-day, cooling degree-day and structured products on global names. The structured products will include cross- commodity swaps.

Traders bought two-month Australian dollar calls against the U.S. dollar last week expecting that the Australian dollar would slowly continue to appreciate. The calls were struck at USD0.56 while spot traded at USD0.55 Wednesday slightly up from USD0.5545 the week before, said a trader in Sydney. Two-month implied volatility stood with bid/offer spreads of 13.2%/13.5% Wednesday down from a mid level of 14.1% the previous week.

Volkswagen Financial Services has entered an interest-rate swap to hedge a EUR50 million (USD46.5 million) floating-rate loan taken out last week. Clement Denks, treasurer in Braunschweig, Germany, said in the three-year EUR50 million (notional) swap the financial division of the German-based car company pays a fixed rate of 4.67% and receives three-month Euribor. The interest rate on the three-year loan is a few basis points above three-month Euribor. Three-month Euribor was 4.65% on Wednesday.

First American Asset Management has doubled its inflation-indexed bond exposure, from 2% to nearly 6%, by buying over $120 million in TIPS over the past six weeks, according to portfolio manager David Steele. The trade was driven not only by concerns about inflation, but also the perceived rich valuations of Treasuries, especially at the short end of the curve. The firm plans on remaining active, at least for the time being, in the 30-year TIPS sector. Steele plans on keeping the TIPS position at least until one of two things occur: the yield on the benchmark 10-year TIP bond drops through the 3% level (it is currently 3.50%), or the two-year note yield backs up 75 basis points, to 5.42% from its current 4.67% yield.

Morgan Stanley Dean Witter's nascent high yield index picked up a big backer recently when Barclays Global Inverstors' recently launched high yield index fund decided to use the MSDW index over the high-yield index from index titan Lehman Brothers. According to Thomas Sponholtz, head of fixed income product development at Barclay, "there was little choice but to use the MSDW index," given their belief that the Lehman index was simply not representative of today's junk market given the liquidity problems in the bonds underlying the Lehman offering. Sponholtz and his team compared the 200 liquid and widely held names in the MSDW HighYield Core Investible Index to the 1100 plus in the Lehman Brothers High Yield Index and concluded that the Lehman index did not replicate the market: "because many credits never trade, we had no idea where to price or value these credits."

Bond players are worried that a planned tax reform in the European Union could undermine the market. The change, which is set for March 1, would introduce a withholding tax for investors in EU countries with strong secrecy laws, such as Austria, Belgium and Luxembourg. Last November, the EU decided tax authorities should share information between countries on citizens who declared income, but there is a seven-year exemption for these countries to charge a withholding tax instead, until they change their banking laws to conform with the rest of the Union. Not only could this hurt the European banking industry as investors choose to open accounts in non-EU countries such as Switzerland, but it also will have far reaching effects on the European bond market.