(1 June 2021 – Global) Investors have traditionally incurred a premium to access scarce green bonds however record issuance may see this trend break.
Bonds sold to fund sustainable projects have generally carried higher prices and lower yields than classic debt instruments. However the differential between conventional bonds and green bonds, labelled the “greenium”, disintegrated in Q2 2021 in the euro corporate bond market.
Most green bonds do not carry a directly comparable conventional peer however key debt capital market participants agree that greeniums are shrinking as a result of an enormous increase in supply. The jump in issuance comes as borrowers globally have raised US$193 billion from green bonds in 2021 so far according to the latest Refinitiv data, a record year-to-date level and almost three times the volume raised compared to the same time in 2020. Green issuance comprises 16 percent euro investment-grade corporate bond sales for 2021 so far, over double its share for 2020 according to Refinitiv.
“We hear from corporates it's not purely about the concession. They really want to improve their standing within the investment community” stated ABN AMRO Senior Fixed Income Strategist, Shanawaz Bhimji.
“Much of the euro issuance is from utilities and real estate firms, noting these sectors already have many green bonds outstanding. If there's not much issuance coming from sectors which offer diversification, the market is not going to pay up” Bhimji added.
“There is a kind of limit to how big the greenium could get. Investors still need to make returns. If there's a lot more supply of green debt, eventually that's going to hit technical” commented Bank of America Head of Credit Strategy, Barnaby Martin.