Green Bond 'Greenium' To Persist Through Q3, Perhaps Indefinitely
Green bonds are showing larger spread compression during the book-building process.
Demand has outpaced supply for green bonds as 2021 marches on, leading to a so-called “greenium,” or green bond premium, compared to conventional debt.
The trend is likely to continue for the foreseeable future, Caroline Harrison, senior research analyst at the Climate Bonds Initiative, said in remarks at the CBI’s 2021 conference.
“The greenium is alive and well and has not yet evaporated,” Harrison said, per S&P Market Intelligence.
S&P Market Intelligence reports that companies globally issued more than $200 billion in green bonds in the first half of the year. But since demand has outstripped supply, green bonds are driving higher prices than so-called “vanilla debt.”
Of the 75 green bonds CBI analyzed from the first half of 2021, 11 were priced inside their yield curves, while 15 were priced on their yield curve but without new issue premiums.
Green bonds are showing larger spread compression during the book-building process, S&P reported, while average oversubscription was 4.7x for green bonds and 2.5x for vanilla equivalents for US dollar denominated debt.
In her remarks to the CBI conference last week, Harrison said the greenium effect should continue into the third quarter.
“Until all the debt is sustainable, I do not envisage that we will find an equilibrium in this market,” she said.
An increasing number of REITs are dipping their toes into issuing green bonds, and proceeds from green bond offerings now account for 16.4% of all capital raised through U.S. REIT debt offerings so far this year, according to S&P. Last year, green bond offerings constituted 10.3% of total debt capital raises.
JP Morgan Securities is the leading underwriter of US REIT green bonds, a title it’s held since 2020. The issuance market is also being flooded with new entrants, including AvalonBay Communities Inc. in the apartment sector, Healthpeak Properties Inc. in healthcare and life science, and Realty Income Corp. in single-tenant retail and industrial.