This paper proposes a modified fiscal sustainability condition, where demand for government bonds is limited. We also consider a case when a country adopts decentralized fiscal system. The fiscal sustainability debate often relied on the Domar condition, which is derived from the government budget constraint and thus focuses only on the supply side of the government bond. However, we argue that many countries have to pay attention to the demand side as investor base for the local currency denominated bond is limited. This paper finds that public debt sustainability depends on the interest rate sensitivity to changes in government bond supply and demand. We show that this is consistent with the cases in Greece, Japan, and the PRC. This modified fiscal sustainability condition suggests that the opening of capital market to non-resident investors is important together with the stability of the bond market. The opening, however, need to be done cautiously and consider how quickly the overseas’ investors move away from the market compared to domestic investors.