Triple threat to sovereign default-risk-free status

Multiple forks in an apple

Regulators and policymakers in the European Union (EU) are weighing three measures that would strip government bonds of their default-risk-free status, making them more costly for banks to hold in capital terms. That might seem a rational response to fears of restructuring or default of Greece, Ireland and Portugal, but it begs the question of whether - and how - a new capital regime would differentiate between issuers whose yields have fanned out across a 900 basis point spectrum.


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