Green Bond Sales Head for Record as More Nations Set for Debuts

(Bloomberg) -- The green bond market is hotting up again with investors bracing for a potentially record month of sovereign sales.

Spain, Colombia and the U.K. are due to offer their inaugural green bonds this month, with the latter expected to “certainly be the largest” in the world by Chancellor of the Exchequer Rishi Sunak. That’s in addition to established issuer Germany, which will sell a new 10-year green bond via auction next week.

All that will soon be dwarfed as the European Union prepares to enter the market, with 30% of its 800 billion-euro ($950 billion) pandemic recovery funding slated for green projects. The bloc will hold a call Wednesday with investors to give more details on its plans.

“Based on the way the pipeline is building, we could see a month for record issuance,” said Trisha Taneja, head of ESG advisory for origination and advisory at Deutsche Bank AG. “This is typically the time that most issuers want to go to market, right after Labor Day.”

Sovereign green sales in September could be at least 20 billion euros, according to Imogen Bachra, a rates strategist at NatWest Markets. That would test the current monthly all-time high, set in March, when Italy made a record-breaking debut and top issuer France sold more debt.

Since the first sovereign green bond by Poland in 2016, momentum has grown with more and more issuers coming on board. Governments from around the world sold $39.1 billion in green bonds so far this year, already surpassing a total of $37.5 billion in all of 2020, according to data compiled by Bloomberg Intelligence. 

That issuance boom has been led by European countries such as France, Italy and Germany, though developing economies are now joining in. Hong Kong and Chile have been among the largest emerging-market issuers in 2021, with Benin having pipped Ghana to sell Africa’s first sovereign social bonds and Colombia set to debut this quarter.

Supply is just catching up with investor demand, with concerns over greenwashing -- overstating the environmental benefits -- less of an issue in the European sovereign market. All of the region’s green sovereign bonds trade rich on the curve versus their conventional counterparts, in a so-called “greenium,” and that is unlikely to change even in a record-breaking year, said NatWest’s Bachra. 

“I feel there is cash available after summer to deploy and would not expect too much pressure on pricing,” said Ronald van Steenweghen, a fund manager at Degroof Petercam, who would like to see more issuance in five- to 10-year tenors. “Most new sovereign issues have been well telegraphed in advance and demand remains very strong, partially due to regulatory changes.”

The biggest and most anticipated deal this month will be from the U.K., with a green gilt maturing in 2033. Other euro-area debuts may come next year from the likes of Austria and Greece, though by then individual sovereign sales should be dwarfed by the EU.

“I think everyone will try to have their own green bond, but the EU issuance is definitely what everyone should focus on,” said Jorge Garayo, senior rates strategist at Societe Generale SA. “This month may be big because you have Germany and Spain, but it’s not going to be the biggest.”

This Week:

• The European Central Bank’s rate decision and press conference on Thursday is the main event for the week. Policy makers are expected to announce a slower pace of bond purchases beginning in the fourth quarter according to a Bloomberg survey of economists
• Apart from green bond supply, Danske strategists expect a 30-year Italy note and 10-year Portuguese security to be offered. Germany will pay 13 billion euros of redemptions. Meanwhile, the U.K. will sell 5.5 billion pounds of four- and 50-year bonds

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