Oct. 4 (Bloomberg) — Record refinancing needs for Europe’s highest-deficit nations may overshadow spending cuts next year and increase the risk that more countries will follow Greece in requiring a rescue to avoid default.
Euro-region governments have to repay 582 billion euros ($803 billion) of debt in 2011, up from 521 billion euros this year, according to estimates from ING Groep NV. Spain has to roll over almost 20 percent of its outstanding loans, government figures show. Portugal has 23 billion euros of debt coming due and Ireland has more than 10 billion euros, according to data compiled by Bloomberg.
“I can’t ignore what’s going on in Ireland and Portugal, and the path of least resistance is for wider spreads or higher yields for both,” said Padhraic Garvey, head of developed market strategy at ING in Amsterdam. “I’m not predicting they will need a bailout next year. I’m just highlighting the risk.”
The extra yield investors demand for holding 10-year Irish bonds rather than German bunds rose last week to 454 basis points, the most since the introduction of the euro. It spread was at 418 basis points today. The yield premium for 10-year Greek bonds was 786 basis points more than Germany, the most of any euro nation. It was 183 basis points for Spain today and 386 basis points for Portugal.
“I’m not sure if yield spreads at these levels justify the risk,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which oversees about $20 billion. “There is a significant amount of debt that’s needed to be refinanced, and we don’t know what the market situation will be like. You may argue that you get rewarded for taking that risk given the high yields. We prefer to be cautious.”
A 750 billion-euro backstop arranged by the European Union and the International Monetary Fund has failed to allay investor concern that some of the so-called euro-peripheral countries may buckle under the weight of their debt.
Spain had its top credit rating cut one level on Sept. 30 to Aa1 from Aaa by Moody’s Investors Service, which cited the nation’s “weak” economic outlook. The Irish government said the same day that costs to bail out the country’s banks may reach about 50 billion euros, equal to roughly 33 percent of the nation’s output.