The mounting level of debt in the industrialised world is prompting a growing number of investors to use the derivatives market to bet on the chance of rich governments defaulting on bonds.

The volume of activity in sovereign credit default swaps -- which measure the cost to insure against bond defaults -- linked to the US, UK and Japan have doubled in the past year because of concerns about their public finances.
...

Gary Jenkins, head of fixed income research at Evolution, said: "The biggest single risk hanging over the bond markets is the rapid rise in public debt in the industrialised world.

"If we get to a point where the market thinks the levels of debt are unsustainable, then we will see an almighty sell-off in the government bond markets, with yields soaring. Governments need to take action to cut deficits and debt."