Bruegel's Grzegorczyk/Wolff: Greeniums in sovereign bond markets
05 October 2022
In this paper, we analyse whether green sovereign bonds are systematically priced differently to conventional sovereign bonds in the secondary markets
Summary
The total market value of green bonds exceeded half a trillion
dollars in 2021 and will increase to $1 trillion by the end of 2022. The
growing European green sovereign bond market has a value of close to
€147 billion at issuance. We study whether investors price green
sovereign bonds differently to normal sovereign bonds.We do not expect
to find a so-called ‘greenium’: the promise attached to green sovereign
bonds is rather loosely defined and green and normal sovereign bonds are
both backed by the full faith and credit of their respective
governments. However, when systematically matching green and normal
sovereign bonds using a number of criteria, including date of issuance
and maturity, a small greenium can be measured. More research is needed
to understand why rational investors do not arbitrage away this
greenium.
full paper
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