The price of bonds does not reflect the likelihood of default since the Government is able to borrow more, to pay off the debt. The Government can continue to borrow money, all the while paying off debts which fall due. This means it is possible for the State to create inflation for all time.
The interest rate is not to do with credit risk, or even Return On Investment, it is to do with the rate at which the bank is willing to make the funds available. The Government is generally willing to borrow at any rate lower than the rate of monetary inflation. The Government can set the rates that it will pay, since there will always be buyers who are willing to exchange bank deposits for (direct) Government liabilities which pay interest.
If the Government can continue to borrow, it will not default.
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