Search results for

Activity in the European credit default swap market surged last week, notably in telecom names as market participants awaited a EUR4 billion (USD3.699 billion) convertible bond issue this week from France Telecom. Contrary to expectations, five-year credit default swap prices on the name actually fell from 160 basis points to 135bps because of a surfeit of sellers, said traders.

One-month euro/U.S. dollar implied vol surged upward last week to around 14% from a low the previous week of 12.75% as the euro showed signs of losing footing against the dollar in the spot market. The euro drifted downward from its high early this month of around USD0.95, hitting USD0.9220 toward the end of the day Wednesday.

BNP Paribas is expanding its alternative risk transfer product line into Asia, planning to offer weather derivatives and insurance and accounting-related products later this year from Hong Kong. It is looking to hire a dedicated marketer/structurer in Hong Kong, said Hikaru Ogata, head of derivatives marketing-Asia. The move represents a natural expansion of the group's reach, he said, noting that it also plans to set up a weather derivatives desk in New York this summer (DW, 1/7). BNP Paribas has been marketing weather derivatives in Europe since May last year.

Marc James, managing director-corporate fixed-income derivatives marketing at Bear Stearns in New York, has taken the new position of head of fixed income and credit derivatives marketing at Commerzbank Securities in New York. Several market players expressed surprise at the move, noting that Commerz has a low profile in U.S. fixed income derivatives. Others said the new position gives James, the opportunity to build a business. James could not be reached for comment.

Lehman Brothers is recommending clients put on a three-month euro call spread against sterling, buying a European-style call struck at GBP0.64 and selling a call struck at GBP0.6750. The net premium the investor pays on this trade was 1.5% last Wednesday. If euro/sterling is above GBP0.6750 at maturity the trade pays out over 5% of the notional. The break even level on the trade is GBP0.6497, according to Francesca Fornasari, foreign exchange strategist in London. Spot was at GBP0.6310 when the trade was recommended last week. Lehman Brothers' three-month forecast for euro/sterling is GBP0.66.

ING Barings is preparing to launch a prime brokerage desk in Hong Kong to snare business in the nascent hedge fund market in Asia. The firm is considering pulling out of the U.S. domestic prime brokerage market, but this is unrelated to the decision to set up shop in Asia, according to Martin Keller, managing director in charge of international prime brokerage in London. "This is a prerequisite to pitch for new business in Asia."

J.P. Morgan is recommending to customers a trading strategy designed to profit from the relative wideness of four-and-a-half-year swap spreads over Treasuries versus one-and-a-half-year swap spreads over Treasuries. The gap between one-and-a-half-year swap spreads and four-and-a-half-year swap spreads is about 32 basis points, said Terry Belton, head of North American derivatives strategy in Chicago.

Asiana Airlines, South Korea's second largest airline, is set to launch a long-delayed interest-rate hedging program this year now that improved ticket sales suggest that finding counterparties will prove easier. C.S. Han, general manager, finance department in Seoul, said Asiana had planned for some time to reenter the interest-rate swap market to hedge 45% of its USD1.4 billion foreign currency floating-rate loan portfolio, but found attracting counterparties difficult because of its double-B long-term rating (DW, 7/17). At the end of November though it re-entered the market for the first time since the Asian financial crisis, paying fixed in a USD200 million (notional) swap.

Munder Capital Management is trying to swap out of agencies and add single-A or better corporate bonds, increasing the firms corporate bond allocation by 5-10%, but it is having a hard time identifying the credits. "Because demand for corporates is strong, it is hard to find the name we like in the size we want," says Peter Root, the Birmingham, Mich.-based chief investment officer who oversees $5.5 billion in fixed income. It is focusing on swapping out of 30-year Treasury bonds and into 30-year corporate paper, an area it had been underweight last year, because the spread between agencies to corporates is wide. "Corporate spreads are wide to the interest rate swap market, and agencies stay close to swaps, so the relationship is a bit out of line," says Root.