FTSE 100: 5350.05 ▲ 83.64 (1.59%)
The basic principle of government debt markets is simple: governments must borrow money to pay for stuff. Then they must borrow more of it to pay back the first lot they borrowed. And so on. Their reliance on this ‘rolling over’, or refinancing, of debts creates risk.
In the eurozone, where a default is a very real possibility, that risk becomes high. Worse still, the eurozone’s weaker members have a lot of debt to roll over in the coming months.
Redemptions falling due in 2012 (source: HSBC and Bloomberg, data as of 24 January 2012)
A note from HSBC Global Asset Management – titled ‘Rollover or be dead’ – warns that rollover risk is ‘particularly heavy’ in the first part of the year with Italy, Spain, Portugal and Ireland needing to refinance around €160 billion. Italy is responsible for most of this, with €100 billion – equivalent to almost 30% of the country’s total 2012 refinancing requirement – falling due in February and March.
Greece is similarly dependent on success in March when some 17.5 billion euros, or a third of its 2012 refinancing requirement, falls due.
‘These repayments are part of a series of hurdles than need to be cleared if we are to continue to move towards a solution to the eurozone debt crisis. While challenging, in our view they will not prove insurmountable,’ notes Philip Poole, the author of the note.
That may be so, but it’s yet another hurdle to test this year’s as-yet surprisingly strong, but one assumes fickle, market nerves.
Comments (9)
Clearly the is a vast amount of money waiting to snap up these lending opportunities, judging by the way the market is behaving.
Also there is strong growth anticipated in the coming months (which the pundits are keeping hidden from us), otherwise why would the share prices be advancing so strongly.
Now tell me I am wrong................??
16:20 on 26 January 2012
Not entirely wrong, certainly, but the strong growth seems likely to come from outside Europe - the US could beat expectations, and, if some of the developing economies do indeed experience a soft landing, they could reaccelerate later this year. The ECB's large injection of cheap 3 year money may enable European banks to make a nice turn from buying sovereign bonds; it seems less likely that they will risk increasing business lending to provide a growth stimulus.
17:07 on 26 January 2012
In my opinion the Eurozone will collapse this year and so will the markets. Greece will default and so will Portugal. The mini recovery in USA has been manufactured by Obama before the election and will petre out later on. I would stay in bonds if your not already in them.
10:08 on 27 January 2012
... bonds which may default ... hum. Not much sense in that. Surely strong businesses will survive the crunch even as governments fail.
The reason some equities are strong is that these businesses have vast cash piles & good profit rates. Most of the world is not in recession, I don't see a reason to back out of globally positioned equities, especially where the businesses are well placed & operating effectively.
11:27 on 27 January 2012
In these times equities traded on the FTSE100 are the way forward that is if you invest long term. If you are worried about the market reversing you can protect your holding by the purchase of a long Put covered warrant to protect the holding. In this regard I have one golden rule - Avoid al Bank stocks.
12:27 on 27 January 2012
Obviously bonds in countries not likely to default, such as Uk and Germany. Also, precious metals. However, due to the Eurozone collapse, which will definitely happen this year, we will see little progress in western developed markets, which declined last year. Yes there may be a little movement elsewhere, but not much. We are actually in a bear market now from the perspective of the last 11 years and I see this continuing for a few years more with mini rallies in between.
17:28 on 27 January 2012
It is disappointing to read these silly comments about the Eurozone definitely collapsing. By far the majority of real experts, (I don’t count journalists who have to make a living by getting people like Michael Doy excited) do not think the Eurozone will collapse. I certainly don’t think it will unless some unexpected event intervenes. The fact is, is that the single currency is forcing a better, more honest world on us and that is happening. It has to happen slowly, because day-to-day financial life needs to continue for us all. What has been happening is that the financial world has been ripping off the rest of the world, politicians have been running impossible accounts to be elected then devaluing their way out of trouble and the electorates have been blissfully unaware. All these things are imperceptibly getting better. Let’s have some optimism!
09:56 on 01 February 2012
Are those "real experts" the same one's who didn't warn us about the credit crunch? I'm sorry, but I would alter your sentence to read "the single currency is forcing a ..... more dishonest world upon us". No monetary union can survive with different economies running at different levels of competitiveness. It may survive, if it becomes a federation with one treasury, but is that going to happen? It is not a question of optimism or pessimism, just realism.
13:23 on 06 February 2012
I am not a black and white person because I believe our world is full of greys and half truths. I don’t deny that the credit crunch was an event featuring mass stupidity, particularly by ‘real experts’, but at the moment you have this situation where the British are so ludicrously out of step with the rest of Europe, and in some respects even USA. Despite being in favour of the EU and the Euro from the beginning I always tried hard to keep an open mind about the Euro. But, although I have read thousands of ‘anti’ words I have never been persuaded by journalists’ or bloggers’ arguments or logic.
Let me politely focus on a sentence you have written. You say, “No monetary union can survive with different economies running at different levels of competitiveness”. I ask, in reply, why not? Of course there are problems, but they are problems of debt and governments that are, quite frankly corrupt, in some cases. All this fuss about sovereignty is just how you sell it. The antis are saying Greece should get out, which may happen, but will be terrible for just about everybody, and that includes you and me. What is going on at the moment is that Greece is being told that if you want the money you have got to clean up your act. I call that pretty straightforward.
‘A dishonest or honest world’. The reason I mention this aspect is that the only difference (in theory, at least) between many national currencies and a single currency is that the exchange rate can change or be changed. I realise this can occur for well-intended reasons, but it is actually legalised dishonesty dressed up as ‘economic policy’. So if we are going to engage in rational debate it should be up to you to explain why politicians should be given the power to manipulate their national currency to curry favour with electorate, and store up debt for the future.
I watch ‘The Record Europe’ which the BBC put on late at night, sometimes on BBC News, sometimes on BBC Parliament at different times, wherever they see a gap, I suppose. It is obvious the BBC put it on because they think they should, but don’t think it matters. When I watch there are a number of obviously smart European MEP’s having an intelligent discussion/argument and there is always a Brit there who is a total embarrassment. The British MEP contributes nothing, just blabs the usual stuff about, “It won’t work, It’s all stupid, You don’t know what you are doing” etc etc. Eventually the Europeans just ignore him in the way that you ignore a spoilt child having a tantrum., and get on with the discussion. It makes me quite ashamed to be British, especially as I know there is plenty of intelligent opinion in this country.
17:00 on 06 February 2012
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