Debt Bomb

Like homeowners facing a huge balloon payment on their mortgage, corporate and government borrowers are about to get hit with a need to refinance massive amounts of debt. This is especially true for borrowers in the speculative, or junk-bond, world. It's also true for highly rated governments such as the United States, the New York Times points out in a long explication of the dilemma.

About $700 billion in speculative debt alone will mature during a three-year period beginning in 2012, "an extraordinary surge that some analysts fear could overload the debt markets," the Times says.

In a report issued in February, Moodys Investors Service warned that U.S. speculative issuers face more than $800 million in funding needs over the next five year years."The enormous amount of debt due over the next five years stems from a robust period of refinancing and leveraged buyout activity prior to the summer of 2007," Moodys warned.

In fact, refunding needs for 2010 to 2012 are $255 billion, about one third higher than they are during the 2009 to 2011 period. That is the highest level ever.

As demand for debt increases, so will the price. That will raise costs for borrowers and could potentially face weaker companies out of the market, forcing them into default.

So far, the market doesn't seem too worried about the possible problems in the credit markets. The price of junk-bond debt has been on a tear, returning a stunning 55 percent in 2009.