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Technology Stocks : Y2K (Year 2000): Is Wall Street & Banking Vulnerable? -- Ignore unavailable to you. Want to Upgrade?

To: C.K. Houston who wrote (66)	7/18/1999 5:55:00 PM
From: C.K. Houston	Read Replies (1) \| Respond to of 158

INVESTORS FEAR ILLIQUIDITY BEFORE Y2K (SURVEY) NEW YORK, July 16 (Reuters) - Well before the curtain falls on 1999, a Wall Street survey found that bond investors are concerned about risks related to the so-called Year 2000 bug, prompting them to seek a safe haven in U.S. Treasuries. Merrill Lynch & Co. Inc.'s ''Y2K Fixed Income Investor Survey'' polled more than 100 firms and found that uncertainty over cash flow may prompt investors to sell corporate bonds and other riskier securities, while holding government instruments and cash. Market participants are increasingly worried that unpredictable factors related to the turn of the calendar from 1999 to 2000 could affect the cash flow of certain bond issuers, and thus the liquidity of their bonds. Liquidity -- the ability to buy or sell a security at will -- is a key concern among market participants who expect declines in liqudity to be evident for some securities later this month and continue until early October. Holders of debt issued by corporations are most concerned about declines in liquidity: 87 percent expect it to fall moderately or seriously. Many holders of corporate debt will seek a safe haven in U.S. government debt. ''Uncertainty on this front is a Y2K conundrum: many investors cannot know for sure the amount of withdrawals and therefore have to overestimate,'' Merrill Lynch said. The Wall Street firm found that ''most investors face at least some cash flow uncertainty -- 64 percent said they were not very certain about their ability to predict cash flows.'' Also, 55 percent of investors involved in the asset-backed and mortgage-backed debt securities markets said they expect a moderate or serious drop in liquidity. Merrill Lynch found that markets with an active exchange of cash flow -- money markets and mortgage-backeds as well as asset-backeds -- are the most concerned about bonds with debt service payments around year-end. ''To date, liquidity has been good for securities with late-December and early-January debt service payments. However 32 percent of those surveyed are concerned about owning these types of securities,'' according to Merrill Lynch. Corporate debt investors, the survey found, are checking closely for firms that are Y2K compliant. Investors said spreads on debt issued by noncompliant issuers should widen in the fourth quarter. Over half of those polled expected corporate debt spreads to U.S. Treasuries to widen by more than 10 basis points. Seventy percent of all investors expect liquidity to fall at least moderately. Investors appear to expect supply and demand distortions to occur in tandem.