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Technology Stocks : Discuss Year 2000 Issues -- Ignore unavailable to you. Want to Upgrade?

To: Bill Ounce who wrote (1144)	3/16/1998 1:08:00 PM
From: Bill Ounce	Respond to of 9818

Investors bet on millenium bomb nando.net Copyright ) 1998 Nando.net Copyright ) 1998 Scripps Howard (March 16, 1998 12:01 p.m. EST nando.net) -- Hedge funds have taken substantial bets in the financial markets that the "millennium bomb" will paralyze the banking system on Jan. 1, 2000, forcing interest rates higher. Futures brokers said there had been heavy selling of December 1999 futures contracts in U.S. and German interest rates, in a financial transaction nicknamed the "millennium fly." A trader in New York said more than $5 billion of contracts had been sold. These investors believe that computer problems will cause significant financial disruption, driving up bond short-term interest rates. This would substantially reduce the value of any interest rate contracts that straddle the beginning of 2000. [...] The millennium fly is a "butterfly spread," where the investor sells December 1999 contracts and buys September 1999 and March 2000 contracts. This would be highly profitable if short-term interest rates rise sharply between December 1999 and March 2000, when the three-month interest rate agreement expires. The activity has all been concentrated in Eurodollar and Euromark contracts, which are based on U.S. and German interest rates. However, brokers suggested that investors might take positions in bond futures also. One trader said: "In December 1999, money could become very expensive. People will be out partying for the millennium, computers could be breaking down and so there could be a scramble for cash. This would be made worse if the bomb has a broader economic impact." Other investors suggested that the hedge funds were scare- mongering in the hope of making a very short-term profit. Thomas Juterbock, head of U.S. and European government bond trading at Morgan Stanley, said: "It is very hard to discount events that far out. Besides, the market probably hasn't thought enough about what the Central Bank response to this will be, which will be to provide liquidity in a time of uncertainty." He said that there would probably be an additional bank holiday over the millennium period, providing more time to resolve any difficulties. By SIMON DAVIES, The Financial Times