All bond labels, including green, social, and sustainability, sustainability-linked and transition bonds (GSS+) offer pricing benefits compared to vanilla equivalents, according to the Climate Bonds Initiative’s (CBI) Green Bond Pricing in the Primary Market H2 report.
The analysis, which assessed bonds priced in the choppy market period of the second half last year, also revealed green bonds have a strong following of investors which helped get deals done in a faltering fixed income landscape last year. Transactions either collapsed or did not get priced for days.
Out of a sample of 72 green bonds with a combined face value of $79bn priced between July and December 2022, Climate Bonds calculated green bond allocations to investors describing themselves as green or socially responsible reached a record 67%, on average.
Climate Bonds has been surveying this data since 2017 on a semi-annual basis, and allocations have ranged from 45% in H2 2017, climbing to 67% in the most recent observation period, having been within two percentage points of that since H1 2021.
The report said, “this suggests that issuers can rely on this strong appetite from dedicated investors which has also undoubtedly contributed to the strong pricing dynamics we have consistently seen for green bonds over the past few years.”
“Thematic bonds have issuers and investors head over heels for one another,” said Sean Kidney, CEO, Climate Bonds Initiative. “Green and other labelled bonds carry huge demand, are regularly oversubscribed, and deliver results for issuers even as tough times cause fixed income to falter.”
He added, “As for investors, they’re throwing themselves at labelled bonds which offer transparent debt fit for the net-zero future.
Amidst a crucial decade for climate action, the labelled bond market really is the goose that’s laid the golden egg. With $5trillion of annual investment needed by 2025 to avert environmental catastrophe, labelled bonds provide the catalyst to get capital to climate causes”
The report also included a primary market pricing study of over 500 euro and USD denominated bonds priced between 01 July and 31 December 2022.
The results indicate bonds bearing thematic labels price tighter to their respective yield curves compared to matched vanilla equivalents.
It noted that “while there was sparse evidence of any bonds pricing through their yield curves during this period, the analysis suggests that on average, bonds bearing thematic labels achieved better pricing than those that did not.”
Of all the labels, green bonds, the largest group in the sample, exhibited the largest benefits with an average spread of 48bps compared to matched vanilla equivalents.
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