The treatment of sovereign debt  The importance of realigning risk and return has come to the fore with regard to yet another issue: the regulatory treatment of sovereign debt, which is the second financial stability facet of debt I would like to touch upon.
Currently, the proposal to end the preferential treatment of sovereign debt is being dealt with in the same way as physical exercise is. Everybody agrees it’s a good thing in theory. But in practice, it’s very hard to get off the couch. Hence, as of now, sovereign debt denominated in an advanced country’s own currency is still considered risk-free.