Anyone have anything to add to Scary Gary's link below?

Y2K Liquidity Reduction Has Hit the British Futures Market

Looks like Europe has gotten a bit more serious than the US about Y2K in the last few days, but I'm just echoing what I've read...

-- Anonymous99 (Anonymous99@Anonymous99.xxx), August 31, 1999

Answers

'Gilts?' Is that what they call government-backed bonds? "As good as gold!" Hilarious.

-- Spidey (in@jam.commie), August 31, 1999.

Especially notable in the article is this quote:

>> "Three large UK institutions have called me this week and said they are very concerned about trading in December contracts because they fear liquidity will entirely dry up by the end of the year and they won't be able to get out," she said. <<

Traders are always thinking of the future, trying to predict it. Trades are based more on expectations than on current conditions.

But (paradoxically) current conditions set expectations, too. People just aren't that smart about predicting the future. They tend to take whatever is happening now and project that trend linearly into the future. That only works well enough to get people in the habit of thinking that way, but not well enough to really predict the future.

So, if "one-fifth of the liquidity has evaporated" in the bond futures market, traders will expect more of the same, and stay out. This will certainly dry up liquidity even further. Even though this is transparently "herd instinct" behavior, traders cannot afford to stay aloof from it, because they know that all the other traders will factor it into their actions.

The key to successful trading isn't to avoid herd behavior, but to push your way to the front of the herd and stay there. Or, more graphically, it is the ability to predict where the cloud of gnats will drift to, moments before it starts to move in that direction.

The cloud of gnats appear to have begun to move.

-- Brian McLaughlin (brianm@ims.com), August 31, 1999.

Holy get a clue batman!

If this had been in the new york times as "US Bond futures.....

what would be the effect??

-- Dave Butts (dciinc@aol.com), August 31, 1999.

Yes, Dave. Just wait a few more weeks now.

-- Jim the Window Washer (Rational@man.com), August 31, 1999.