Germany’s first sovereign green ‘twin’ bond issuance, which was massively over-subscribed, has been welcomed by asset managers who say these bonds will help deal with the problem of illiquidity and boost diversification.
Green twin bonds are green bonds issued with the same maturity and coupon as a conventional bond and the aim is to leave liquidity in German government bonds unaffected.
Germany’s first issuance attracted €33 billion in orders for a final book size of €6.5 billion.
Bram Bos, lead portfolio manager for green bonds at NN Investment Partners, said green twin bonds were an innovative form of green bond issuance.
“We think this concept is a much better option than the concept currently being explored by the Danish government, which is looking to issue separate green labels or stickers which could be attached to any conventional bond,” said Bos.
Jesús Martinez, a portfolio manager at Aegon Asset Management, said: “While the size of the issuance itself was remarkable, Germany also tested the existence of the so-called ‘greenium’ – the extra spread that investors would be willing to pay for green bonds versus regular bonds. For this purpose, the bond shared the characteristics of an existing regular German bond, both in coupon and maturity.
“Although the initial pricing was set as flat versus its twin bond, the amount of interest among investors allowed for a basis point downward review in the bond’s spread. Germany is expected to issue another green bond in the coming months in its ambition to build a European green curve.”
Joshua Kendall, senior ESG analyst at Insight Investment, said: ” Total German green bond issuance has typically lagged other markets and we expect the Federal government’s leadership will encourage Germany-based issuers to follow. Daimler, for example, has announced its inaugural green bond, too.
“Germany, like other European countries, has aggressive environment targets and impact bond issuance will help accelerate decarbonising the economy.”
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