Green bond comment - May

The green bond market has continued its rapid march to maturity in recent weeks, with new geographies and industry sectors coming to market for the first time, innovative bond structures being launched, significant pricing advantages being reported, and plans for a new service to rate bonds on their environmental impact.

This boost to the quality of the market has been matched by strong gains in quantity, with some $25 billion of new green bonds already issued this year. This compares with a total of $41.8 billion for the whole of 2015.

Highlights of the past month included:

• the first sustainability bond from a Turkish issuer;
• the first labelled corporate sustainability bond from the US;
• the first all-green medium-term note programme;
• the first residential mortgage-backed security;

The Turkish deal – a five-year, $300 million bond from investment and development bank Turkiye Sinai Kalkinma – was one of several that tightened significantly in price in response to strong investor demand.

Axis Bank's inaugural $500 million, five-year bond was another. This came down to 160 basis points over US Treasuries from initial price thoughts of 175 points over. This was the lowest spread for a dollar-denominated benchmark-sized bond from an Indian bank since the financial crisis, Axis claimed.

Just as encouraging as these new entrants, was the return to the market of some major established issuers.

These included not just the development banks, such as KfW, who have dominated the market since its inception, but also private sector banks such as ABN Amro, municipalities such as Stockholm County Council and Ile de France and corporate issuers including Toyota, and TenneT.

The latter – a European grid operating company – is fast becoming a major force in the market, having issued a €500 million ($560 million) Schuldschein in April and announced plans in May for another issue of at least that size. These follow its inaugural €1 billion bond which was named Environmental Finance's Corporate Green Bond of the Year for 2015.

TenneT's views on the strengths and shortcomings of the green bond market will be discussed by group treasurer Jeroen Dicker at our sixth annual Green Bonds Europe conference on 20 June.

If the rate of expansion and innovation continues at its present rate, competition for our 2016 Green Bond awards will be fierce indeed.

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