Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.
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The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014.
Private debtors won't be the only ones to face higher interest rates and declining ability to pay in the next couple of years. Uncle Sam isn't far behind them, and the article above notes the huge U.S. sovereign debt load that has to be rolled in the same time frame as all of those junk bonds - all while the economy remains weak and on the cusp of a double-dip recession. My recent posts examined the threats facing U.S. taxpayers and Treasury bondholders. Foreign bondholders are increasingly moving to minimize the risks they may face:
China and Japan, the two biggest foreign holders of Treasuries, reduced their positions of U.S. government debt in January as a measure of demand for American financial assets fell to a six-month low.
How is all of the U.S.'s debt - sovereign, corporate investment-grade, and high-yield - going to be rolled at a time when the largest customers for our lowest-risk debt are slowly backing away? That's anyone's guess. I'd prefer not to guess, which is why I'm not buying any bonds at all for the foreseeable future.
