In 2012, Germany, Italy, France, Spain, Greece, Ireland and Portugal will have maturing bonds and t-bills worth of €1.04 trillion. In addition to this, European banks will have another trillion Euros of maturing debt. When we look at the charts below, we see that the time period with highest maturity of sovereign debt in 2012 will be the March-April period when €276 billion will be due. Not only March-April period is the period with highest amount of maturing debt, it is also period with the riskiest maturing debt. In this month, Greece and Ireland will have to make large payments compared to their GDP. Eurozone banks will have maturing debt of €170 billion during these 2 months.
If the stock market continues to rise through February, we may see a pullback during March and April in case anything goes wrong in Europe. At current rates, Germany will have to pay 2.45% yield in order to roll its debt over for another 10 years. The other countries in our list will not be as lucky as Germany. Italy will have to pay 5.57%, France will have to pay 3.01%, Spain will have to pay 5.25%, Greece will have to pay 34.38% (hence the bailout), Ireland will have to pay 8.20% and Portugal will have to pay 12.26%. Of course, it is highly unlikely that the last 3 countries will issue new debt outside of a bailout mechanism.
If anything goes wrong during this period, the reaction might send Italy and Spain's yield back to very dangerous levels (i.e., near or above 7%) and this can create further reactions in the stock market similar to one of last October-November. Investors with low risk appetite might want to reduce their equity exposure during those months. If this period goes uneventful, the resulting rally might continue until November when US presidential elections will be held.
See the charts below for maturing debt by country in each month of 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
