Biggest economies face $7.6 trillion tab for maturing bonds
Updated: 2012-01-04 07:51
LONDON - Governments of the world's leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.
Led by Japan's $3 trillion and the US's $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields are forecast to be higher by year-end for at least seven of the countries.
Investors may demand higher compensation to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show.
The International Monetary Fund (IMF) cut its forecast for growth this year to 4 percent from a prior estimate of 4.5 percent as Europe's debt crisis spreads, the United States struggles to reduce a budget deficit exceeding $1 trillion and China's property market cools.
"The weight of supply may be a concern," Stuart Thomson, a money manager in Glasgow at Ignis Asset Management Ltd, which oversees $121 billion, said last Wednesday. "Rather than the start of the year being the problem, it's the middle part of the year that becomes the problem. That's when we see the slowdown in the global economy having its biggest impact."
The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor's cut the US credit rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.
"It is a big number and obviously because many governments are still in a deficit situation the debt continues to accumulate and that's one of the biggest problems," Elwin de Groot, an economist at Rabobank Nederland in Utrecht, the Netherlands, part of the world's biggest agricultural lender, said last Tuesday.
While most of the world's biggest debtors had little trouble financing their debt load in 2011, with Bank of America Merrill Lynch's Global Sovereign Broad Market Plus Index gaining 6.1 percent, the most since 2008, that may change.
Italy auctioned 7 billion euros ($9.1 billion) of debt last Thursday, less than the 8.5 billion euros targeted. With Italy's economy sinking into its fourth recession since 2001, Prime Minister Mario Monti's government must refinance about $428 billion of securities coming due this year, the third-most, with another $70 billion in interest payments, data compiled by Bloomberg show.
Borrowing costs for G7 nations will rise as much as 39 percent this year, Bloomberg surveys show. China's 10-year yields may remain little changed, while India's are projected to fall to 8.02 percent from about 8.39 percent. The survey doesn't include estimates for Russia and Brazil.
After Italy, France has the most debt coming due, at $367 billion, followed by Germany at $285 billion. Canada has $221 billion, while Brazil has $169 billion, the United Kingdom has $165 billion, China has $121 billion and India $57 billion. Russia has the least maturing, or $13 billion.
Rising borrowing costs forced Greece, Portugal and Ireland to seek bailouts from the European Union and IMF. Italy's 10-year yields exceeded 7 percent last month, a level that preceded the request for aid from those three nations.
"The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combination," said Michael Riddell, a London-based fund manager at M&G Investments, which oversees about $323 billion.
The two biggest debtors, Japan and the US, have shown little trouble attracting demand.
Japan benefits by having a surplus in its current account, which is the broadest measure of trade and means that the nation doesn't need to rely on foreign investors to finance its budget deficits. The US benefits from the dollar's role as the world's primary reserve currency.
Japan's 10-year bond yields, at less than 1 percent, are the second-lowest in the world, after Switzerland, even though its debt is about twice the size of its economy.
The US attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the most since the government began releasing the data in 1992. The US drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills it auctioned on Dec 20 even though they pay zero percent interest.
With yields on 10-year Treasuries below 2 percent, an increasing number of investors see little chance for US bonds to repeat last year's gains of 9.79 percent. The US pays an average interest rate of about 2.18 percent on its outstanding debt, down from 2.51 percent in 2009, Bloomberg data show.
'Given how well they have done, we don't think they're any longer a very good hedge," Eric Pellicciaro, head of global rates investment at New York-based BlackRock Inc, which manages $1.14 trillion in fixed-income assets, said last month.
The median estimate of 70 economists and strategists is for Treasury 10-year note yields to rise to 2.60 percent by year-end from 1.88 percent as of last Friday.
In Japan, the forecast for the nation's benchmark note yield is 1.35 percent, while it's expected to rise to 2.50 percent in Germany, from 1.83 percent last week.