Europe’s financial troubles apparently haven’t killed the party in the capital markets: Companies in the U.S. and Europe are raising huge sums of cash by selling bonds again after a brief bout of Greece-related jitters. One thing to look out for, however, are signs that some firms are having to compete fiercely with government borrowers for investors’ cash. That could make the outlook for corporate America and Europe a little gloomier.

So far, such a “crowding out” effect isn’t that visible. Recent debt sales by Germany, Portugal and Britain, among others, have performed admirably, even as a wave of U.S. and European firms have come out of the woodworks to raise cash. The quickness with which credit markets have opened up again after closing temporarily in recent weeks is a good sign. French spirits company Pernod-Ricard, for example, is out marketing a new 1.2 billion euro junk bond Thursday.

“It’s not like there is a shortage of demand out there,” says Joanne Segars, chief executive officer of the U.K.’s National Association of Pension Funds. She says investors have a strong appetite for both U.K. government bonds and debt issued by corporates – making major funding problems unlikely. She also points to the massive sums of cash that pension funds and insurance firms are sitting on that they haven’t yet invested.

Indeed, the fact that large European companies have been able to sidestep their traditional banks and tap the capital markets for cash has helped them roll over debts and avoid defaults. That, in turn, has probably prevented what would have been a weaker economic recovery in Europe.

And yet, companies aren’t alone in their cash needs. The world’s governments will be knocking on investors’ doors for cash with record frequency this year to finance large budget shortfalls. A Wall Street Journal story earlier this month pointed out that in the next three months alone, European countries are on track to raise 287 billion euros, while European banks face about 560 billion euros in maturing debt this year.

So far, both institutional investors and small “retail” buyers remain hungry for debt they can buy and hold in their portfolios over the long haul. But the danger is that at some point markets could seriously wobble for external reasons, forcing governments and companies to compete for cash and lock in high borrowing costs they can’t sustain.



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