Monday , November 30 2020
Home / Amol Agrawal: Mostly Economics / Building a Green Yield Curve

Building a Green Yield Curve

Summary:
SO far, the coloour of finance was seen as either black or red as in profits or loss. Dr Sabine Mauderer of the Deutsche Bundesbank in this speech points that Germany is planning to build a Green yield curve: Germany issued a green bond with a 10-year term for the first time in September, followed by another green bond with a 5-year term last week. Both issues, with a total outstanding volume of € 11.5 billion, attracted huge interest among investors. Looking back at these successful issuances, I can conclude that it was worth entering the market a little later, but with a tailored approach. Germany entered the market with the innovative “twin bond” concept meeting market’s liquidity needs: Each of these “Green Bunds” is twinned with a pre-existing conventional bond with identical

Topics:
Amol Agrawal considers the following as important: , , , , ,

This could be interesting, too:

Amol Agrawal writes Fischer Black Prize 2021 awarded to Matteo Maggiori

Amol Agrawal writes Two Goals, Two Lessons | What central bankers can learn from Diego Maradona

Amol Agrawal writes From Valuable to Worthless and Back Again: Pre-1950 Chinese Currency

Amol Agrawal writes What’s in a name: Name of Saudi Arabian Monetary Authority changed to the Saudi Central Bank

SO far, the coloour of finance was seen as either black or red as in profits or loss.

Dr Sabine Mauderer of the Deutsche Bundesbank in this speech points that Germany is planning to build a Green yield curve:

Germany issued a green bond with a 10-year term for the first time in September, followed by another green bond with a 5-year term last week. Both issues, with a total outstanding volume of € 11.5 billion, attracted huge interest among investors.

Looking back at these successful issuances, I can conclude that it was worth entering the market a little later, but with a tailored approach.

Germany entered the market with the innovative “twin bond” concept meeting market’s liquidity needs: Each of these “Green Bunds” is twinned with a pre-existing conventional bond with identical features in terms of its coupon structure and maturity.

The twin bond concept means that the “green premium” is immediately apparent. Notably, the yield discount of the 10-year Green Bund is around 2 basis points and around 1 basis point for the 5-year Green Bobl.

Looking ahead, the Federal Government is going to build a “green curve” over the entire maturity range of Federal securities from 2 to 30 years. A detailed issuance preview for 2021 will be provided in December.

Building a green yield curve will help private sector price their green bonds as well.

Further, other German players taking interest in Green bonds:

Apart from the Federal Government, there are other public issuers in Germany who are already active in the market:

At the state level, North Rhine-Westphalia has issued a number of sustainable bonds with a total volume of € 13.3 billion, making it the top issuer in this segment.

State-owned development banks are also a vehicle which can be used in this market. Germany’s largest promotional bank, KfW, is the country’s number one issuer of green bonds with an issuance volume of € 28 billion.

On a side note: Green promissory notes, also known as “Schuldschein”, are quite a niche product due to their characteristics, but might be an alternative worth considering for communities and bigger cities.

This clearly underpins Germany’s goal of becoming one of the global leaders in sustainable finance.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

Leave a Reply

Your email address will not be published. Required fields are marked *