OECD says Y2K fears partly behind bond yields rise

greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Flight to quality continues.



Tuesday November 16, 5:18 am Eastern Time

OECD says Y2K fears partly behind bond yields rise

PARIS, Nov 16 (Reuters) - Concern about the ``millennium bug'' has helped push up bond yields around the world as corporations seek to boost their liquidity as a precaution against any disruptions at New Year, the OECD said on Tuesday.

Long-term interest rates have been rising among the 29 members of the Organisation for Economic Co-operation and Development in anticipation of tighter monetary policy to head off inflationary pressures, it said in its semi-annual report.

At least part of the rise has been due to concern that the so-called Y2K bug, which could jam computers that cannot switch to 2000, could upset normal economic activity.

The Paris-based think tank noted spreads between corporate and government bonds were exceptionally high, especially in the United States. The gap there was about 0.8 percentage point compared to 0.4 percentage point in Germany and just over 0.2 percentage point in Japan.

``This partly reflects large new issues of corporate bonds, some of which appear to be intended to build liquidity before the turn of the year as a precaution against disruptions that might arise from the millennium bug,'' it said.

``In all regions, short-term market rates appear to incorporate a premium related to uncertainty about the millennium bug which should dissipate in the new year.''

Against this background, the OECD noted, ``equity prices have been volatile but generally firm as the global recovery has raised earnings expectations for corporations.''

The report said bond yields were likely to continue rising in all main regions until the second half of next year but by less than short-term rates.

``Yield curves could flatten somewhat towards the end of the projection period,'' it said, referring to 2001.

-- (Trend@watch.ing), November 16, 1999




Tuesday November 16, 11:18 am Eastern Time

Brazil bourse has Oct net outflow of foreign cash

RIO DE JANEIRO, Nov 16 (Reuters) - Brazilian bourses registered a net foreign capital outflow inflow of $145.6 million in October, compared with a net gain of $273 million in September, the local Securities and Exchange Commission (CVM) said on Tuesday.

Net foreign investment in the bourses has risen by $1.10 billion so far this year, down from the $1.24 billion accumulated as of September.

Foreign investors plowed $570.12 million into Brazil's stock exchanges but divested $715.68 million in October.

The amount represents cash under the terms of the CVM's Annex Four, which regulates foreign investment in Brazilian shares, derivatives, debentures and privatization bonds. However, 98 percent of the total is stocks.

Foreign investment in local bourses had picked up in September as the government's budget plan encouraged investors to buy stocks that have been looking cheap in dollar terms since a January currency devaluation of 30 percent or more.

But investors shied away from the market in October due to a new tax on financial transactions, generalized worries about emerging markets and caution ahead of the millennium with potential glitches due to the Y2K computer system bug.

In 1998, Annex Four figures showed net foreign capital outflows of $2.46 billion, with $21.89 billion in investment and $24.35 billion in divestment.

-- (Trend@watch.ing), November 17, 1999.

Moderation questions? read the FAQ