Fears are rising over the ability of governments to raise the vast amounts of debt they need to pay for economic stimulus packages and bank bail-outs. Faced with the prospect of governments issuing more than $2,535bn combined of bonds in the next year, bankers warn of potential problems in meeting funding needs. The rush of bond issues comes against a backdrop of record low yields in some countries amid recession and fears of deflation. Last week, 10-year bonds in both the US and the UK fell to 50-year lows. However, faced with contracting economies, lower tax receipts, and rising benefit payments, countries could face higher debt-servicing costs as overall debt levels rise. The UK and Italy may face the greatest difficulties, with the UK expected to issue £10bn of bonds in December compared to average monthly volumes previously of about £2bn a month.
