The Spong website reported that an "unnamed source" told them that development on Bayonetta 2 has been stopped. There has been no word as to how far along the project was before it was shelved, but the source did say the game was supposed to have a new character from the US military.
The original Bayonetta was developed by Platinum Games and has been one of Sega's most successful new IPs. Before shelving this sequel, perhaps they should look at shelving other new IPs instead of one that would practically print money.
Sega has not commented.