Junk Bond Avalanche Looms for Credit Markets

[steven johnson]

Moody’s Investors Service warned on Monday that the United States and other Western nations were moving “substantially” closer to losing their top-notch Aaa credit ratings due both to the huge debt governments are taking and the looming refinancing bubble coming due in 2012. Junk bonds maturing in 2010 amount to $21 billion this year but will be $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.

The US government will have to borrow $1.8 trillion in 2012, because $859 billion in old bonds will come due and have to be refinanced in addition to the deficit. By 2013 and 2014, $1.4 trillion will have to be raised annually.

Investment-grade loan refinancing will amount to $1.2 trillion between 2012 and 2014, including $526 billion in 2012. Then, there is the looming rollover of commercial mortgage-backed securities, which will double in the next three years, hitting $59.7 billion in 2012.

Hold on to your hats.

By NELSON D. SCHWARTZ
Published: March 15, 2010

When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster.

Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.

The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.


Junk Bond Avalanche Looms for Credit Markets

[ixion]

1. If you've ever played Sim-City, you know all too well what happens

when you issue too many bonds: Eventually, you city goes broke.

'nuff said.

[Statistical]

2. Maybe every member of Congress should be required to play Sim City once per term.

[dixiegrrrrl]

3. They are playing it. With us as the pawns.

Sad thing is they have no learning curve.