Apocalypse 2012. That seems to be the message of a must-read New York Times article that puts together the bill that is coming due for a decade of boisterous spending on everything from private-equity deals to government spending.
For starters, the story estimates that US$700 billion in high-yield corporate debt—junk bonds, in other words—will have to be refinanced between 2012 and 2014. To put that into perspective, a mere US$21 billion of such debt is coming due this year.
Competition for savings will be intense because high-yield borrowers won’t be the only ones looking to borrow money. Investment-grade companies are expected to refinance US$1.2 trillion in loans between 2012 and 2014.
Finally, there’s the biggest single borrower of them all. The U.S. government will need to tap creditors for nearly US$2 trillion in 2012.
Given the looming demand for savings, it seems a nearly sure bet that interest rates will head much higher. Savers who are griping about the lack of decent yields in today’s market could see a dramatic reversal of the situation within two years. Companies, on the other hand, may feel the pain as the cost of borrowing soars. “An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” says a senior officer at credit-rater Moody’s. His metaphor may be mixed, but his message is clear.
Freelance business journalist Ian McGugan blogs for the Financial Post.