Derivatives action remained subdued over the past week.

"It's the summer doldrums of a dread bear market," remarked one derivatives professional.

The new-issue calendar is light for the rest of the summer, so activity is unlikely to pick up until next month, the professional said. "

One dealer said he continues to see sporadic selling of inverse floaters that were issued over the past year.

While older inverse floaters can be linked or converted to fixed-rate bonds with above-market coupons, more recent concoctions transform into underwater, low-coupon bonds.

"We're seeing a good amount of linked bonds in the market with 5% to 5 1/2% coupons," one dealer said.

According to Securities Data Co., more than $20.2 billion of inverse floaters were sold last year, compared with $7.1 billion in 1992 and $3.9 billion in the first half of this year.

Swap rates were unchanged on Monday from a week earlier, according to EuroBrokers Capital Markets. Short term rates were up slightly, as the Public Securities Association's municipal swap index rose to 2.88% from 2.74% a week earlier.

Open interest in the September municipal futures contract is beginning to wane, as investors move on to the December contract. Open interest dropped to 20,147 contracts last Friday, the lowest point since June 14. But volume picked up in the December contract as open interest rose to 2,090 contracts Friday from 383 contracts a week earlier.

Most institutional buyers have drastically reduced their appetite for derivatives, but some dealers reported recent buyer interest in inverse floaters based on California bonds.

"You could see a deal or some secondary market action. but it's pretty light," one official said.

Also in the secondary market, Moody's Investors Service released ratings on another $43.5 million of secondary market derivatives based on California revenue anticipation warrants. Moody's rated the derivatives, backed by liquidity support from Bankers Trust, MIG-1/VMIG-1. Lehman Brothers announced last week that it hired Brace Brittain as a managing director in its equity capital unit. Brittain will give the firm's equity derivatives department a boost following the departure of Michael Rulle, who left with four other Lehman derivatives officials to join Canadian Imperial Bank of Commerce.

Brittain had been a managing director at Swiss Bank Corp., where he was responsible for marketing derivatives based funds.

From 1980 to 1991, Brittain worked at Salomon Brothers Inc., during which he spent four years as the firm's international economist.

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