Inspired by the seminal article of Knight (1921), finance literature has started to develop theoretical models where both risk and uncertainty affect the pricing of financial assets. In the traditional models of finance theory, pricing of assets reflect only risk, since the probability distributions of the outcomes are assumed to be known, or at least, are assumed to be predictable from the past behaviour. Recent theoretical research suggests that Merton’s (1973) inter-temporal asset pricing model can be extended to allow disentangling risk and uncertainty in a simple way: the traditional risk-return relationship is simply augmented by a measure of uncertainty. We apply this theory to the European sovereign bond market data and estimate different variations of GARCH-M models, seeking to explain excess bond returns primarily by bid-ask spread (measure of uncertainty) and by conditional volatility (measure of risk). We also study to which extent the European crises resolution policies have had impact on risk-uncertainty-return trade-off. Our preliminary findings suggest that both risk and uncertainty matter for excess bond returns and the European sovereign crises resolution policies have been only partly successful in mitigating the sovereign risk.