Flood of sovereign debt drowns out corporate bonds

Elevated government borrowing will be a fixture of the credit markets for the foreseeable future, as emergency spending and tax shortfalls heighten state financing needs. But could this excess supply of sovereign debt threaten demand for corporate bonds? Alice James reports

Bailing out the financial sector and setting up initiatives to stimulate the economy haven’t come cheap in the US or Europe, and most governments are still sorting out the bill. Added to that, governments have generally been unwilling to jeopardise the economic recovery by hiking taxes, leading to a drop in public revenues and a rise in fiscal deficits.

The International Monetary Fund estimates the cost to governments of the bailout at more than $10 trillion, including capital injections to