Europe: Doubling Down on Debt

Summer vacation is over and things in Europe may soon start rocking and rolling all over again. Not only is France about to experience its first 24 hour general strike this Tuesday in a long time, which will likely remind everyone else in Europe (hint Greece and Ireland) that austerity is the new normal across the Atlantic and the 14th annual monthly salary is not going to come back just because nobody is talking about it, but as the FT reports Europe needs to issue double the amount of debt in September compared to August. From the FT: "Eurozone governments will try to raise €80bn ($103bn) in September compared with new bond issuance of €43bn in August. Spain is expected to attempt to borrow €7bn in September compared with €3.5bn in August, according to ING Financial Markets." The dramatic ramp up in issuance is forcing the FT to speculate that "some of the weaker economies could fail to raise the amount of money they need as eurozone governments attempt to issue double the amount of debt this month compared with August." For all those who have been waiting for the perfect storm in Europe to finally develop the time of waiting may be over.
More from the FT:

Padhraic Garvey, head of rates strategy for developed markets at ING Financial Markets, said: “We are heading into a critical period as the chances rise that a government may fail to raise the money it needs.

“Spain, Portugal and Ireland are the obvious ones to worry about. Are investors willing to stay long, or buy the debt of these countries? I’m still not seeing investors willing to buy into the periphery.”

Some strategists say the return of most investors from holidays this week could increase volatility in these markets because many have put decisions on their portfolios on hold during the summer.

With most investors back at their desks, some could start selling peripheral debt in the coming weeks, particularly as the outlook for the global economy has deteriorated. In spite of some better than expected data out of the US last week, worries about a double-dip recession have increased.

But other strategists insist governments will have little difficulty in funding themselves, even if they have to pay higher premiums or yields to attract investors. They say countries such as Portugal and Ireland have already raised most of the money they need this year.

Government bond yields of the peripheral countries, however, may come under further selling pressure.

Expect the stock market to begin acting even more deranged over the next three weeks, now that the Fed has to perform double duty to make sure that all the upcoming auctions don't clog the system to a halt, and the realization that Europe has been bankrupt all along in 2010 isn't comprehended by too many of the "naifs."