Millennial markets: Nothing to fear but fear itself

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Millennial markets: Nothing to fear but fear itself

Credit and swap spreads have already risen in anticipation of the world's financial markets clamming shut this December. Borrowers and bankers talk nervously about the disappearance of liquidity and short-term funding in the run-up to year 2000. Central banks are on standby. So are some traders who hope to take advantage of illiquidity and mispricing. The frustration for many is that it is their own contingency plans, not their computers, that threaten chaos. But no-one knows how fierce the full millennium effect will be. Marcus Walker reports

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The real millennium bug isn't digital, it's psychological. It's not Y2K itself but everyone's perceptions of it. And in the world's capital markets - where traders sell on rumour and buy on fact - the countdown to the end of the year is already proving to be a jittery one.

At first sight this would appear strange. Overall, most financial markets professionals think computer systems will suffer hiccups rather than breakdowns over the new year. Perhaps the glitches will be worse than those accompanying the birth of the euro, but they will be far from unmanageable.

Trades may fail to settle, back-office systems may spew out corrupted data, but this shouldn't bring business shuddering to a halt. "Manual intervention is a viable alternative in almost every situation," says Jeffrey Werner, treasurer of GE Capital, one of the biggest borrowers in world capital markets.

But despite the likely modesty of the IT problem, virtually all players - investors, borrowers, and brokers - are changing their behaviour, either because the millennium is an unknown quantity, or because they expect that others will behave abnormally too.

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