This makes sovereign bonds a more attractive investment for banks vis-a-vis other assets of similar riskiness. Liquidity of sovereign bonds as well as such securities being eligible collateral for refinance by central banks only further adds to their attractiveness. 3. Liquidity Coverage Ratio (LCR) regulation (under Basel-III) also requires banks to hold High Quality Liquid Assets (HQLA).
Though there are other securities eligible as HQLA, the cost and ease of holding are the most attractive for sovereign bonds.