In other words, market participants may conclude that the public sector is on the wrong side of the “Laffer curve”, so that a further tightening of the fiscal stance would be counterproductive. Or, they doubt the political ability of governments (let alone their willingness) to service their debts in view of political constraints.
That is, creditors may come to realise that their explicit claim on the government is not necessarily senior to the implicit promises that the government made to taxpayers and beneficiaries of government spending. As a result, the use of government balance sheets to borrow from future generations becomes more costly.