For those whose vision of euroland tends towards the nightmare scenario, the consolation is there are at least two alternative euro-currencies.

The Swiss franc has already benefited from a flight to quality by nervous Deutschmark investors. It has appreciated about 5% against the DM in the second half of the year. A recent Italian Swiss franc issue was well recieved by the market. But with the euro paper expected to offer substantially higher yields than the Swiss franc, what effect will the euro have on the Swiss franc fixed interest market?

Not much, suggests Marc Polydor, chief investment officer at Union Banque Privée in Geneva: because in any case, you already have competition from Germany. The single currency may mean they are more comparable, and it's a bigger market, so in that sense it makes for more competition in Europe." Polydor feels that the flight to quality, which has lowered Swiss bond yields, will not continue once the changeover to the euro takes effect.

Ashok Talukdar at Saloman Smith Barney Citi Group does not see Swiss franc bonds as a serious global market as things stand: "it's not the most liquid market in the world and it's low yielding. I think part of the investor interest is for the currency diversification. There are parallels with the way people bought Japanese bonds and then hedged them to get a pick up. That may be happening with Switzerland, but it's not nearly as liquid a market."

Murray Johnstone's global fixed interest head Rod Davidson says global investors tend to keep away from the Swiss Franc "because it's relatively illiquid, there's not much global issuance and its been particularly low yielding". He suggests one possible consequence of the single currency may be that the Swiss market might become a real alternative, which would mean an improvement in quality over time, but that is an issue for the future. But certainly investors will increasingly see the Swiss franc as an alternative to the euro, as they will with sterling, although sterling is much the more liquid market.

An absence of well-defined euro benchmarks is cause for concern. While the dispute continues on money market benchmarks between those who favour euro-Libor, or the new eurobor, the current facvourite for "euro' bond investors seems to be the Merrill Lynch Emu index. "There will be others appearing," says Polydor. "These things have an evolutionary aspect and usually this tends to happen faster than people expect." Richard Newell"

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