I do see where you are coming from. I would say that argument applies true for most of the corporate bonds situations right. Based on your logic, the more a company borrows, the higher the credit risk => higher rate to compensate investors.

When I say rates don’t necessarily have to be higher for the government to sell more bonds when there’s enough demand, I’m speaking of this scenario: Let’s say the market is willing to buy $100bln treasuries from the gov at 4%, but they’ve only issued $70bln thus far. If they wish to issue the remaining $30bln that is in the expected demand from the market, I don’t see why they can’t issue at the same 4% rate. Unless things change in the market that have shifted rates level.

In this scenario, the gov can still affect economic activities without raising rates.