How About a Mash Up of Green Bonds and Century Bonds?

(Bloomberg Opinion) -- Sweden is considering selling 100-year bonds to take advantage of the unprecedented decline in global yields. With almost half of the nation’s debt already owned by the central bank, though, there’s skepticism about how much demand the debt office can drum up in what is an already illiquid market.

So the country should accelerate plans to issue its first green bonds to this year from next, tapping a growing investor base that sees debt designed to fund environmentally friendly endeavors as more desirable than its vanilla counterpart.

At $121 billion, worldwide green bond sales this year are already 57% higher than at this point in 2018. That puts the market on track to easily beat last year’s $135.3 billion record issuance.

How About a Mash Up of Green Bonds and Century Bonds?

In February, Financial Markets Minister Per Bolund told Bloomberg News that he would commission the National Debt Office to explore green bond sales. That was part of a 73-point January agreement between his Green Party and other political groupings allowing the formation of a coalition government. In July, he said the first sale would come next year.

But why wait? Earlier this month, Swedbank AB economists Anna Breman and Andreas Wallstrom wrote in the Dagens Nyheter newspaper that the government should seek a more expansive fiscal policy and pursue environmentally friendly investments, including speeding up its issuance of green bonds. In June, Magnus Billing, head of Alecta, Sweden’s biggest pension fund, called for the country to sell green bonds to assist in the “transition towards a more climate-adapted society.”

Sweden’s longest-dated issue currently in existence is a 3.5% bond repayable in 2039 that yields about zero. Given that all of the Nordic nation’s debt yields about the same as that of France, Austria and Belgium, it’s reasonable to assume that longer-dated Swedish bonds would trade at similar levels to 50- and 100-year issues from those countries.

How About a Mash Up of Green Bonds and Century Bonds?

In May, the Netherlands became the first AAA rated nation to sell green bonds, attracting orders for more than 21 billion euros ($23 billion) before issuing 6 billion euros of 20-year securities. The yield on those bonds dropped below zero for the first time at the start of this month, and is now just a whisker higher than vanilla Dutch government debt with similar maturities.

How About a Mash Up of Green Bonds and Century Bonds?

But given the heightened popularity of both ultra long-dated securities and of investments that take environmental, social and governance issues into account, a 100-year green bond could turn out to be even cheaper than a vanilla issue. Sweden should expand its horizons by offering investors the longest-dated green bond ever seen – perhaps saving itself a few basis points in interest at the same time as doing good.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

©2019 Bloomberg L.P.

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