In a landmark moment for Europe’s push towards climate focused financing, investors lapped up Germany first-ever green bond.
Germany has raised 6.5 billion euros from the 10-year bond after investors queued up for over 33 billion euros.
“With today’s issue of the government’s first green bond, we have taken an important step towards significantly strengthening Germany as a sustainable finance location,” said Joerg Kukies, Germany’s deputy finance minister.
Germany aims to issue a range of bonds with different maturity dates to build a green yield curve that other countries and companies looking to sell their own green bonds could use as a reference point.
Germany’s green bond programme also features a unique feature where investors will be able to swap the green bonds for an otherwise identical conventional bond, to help mitigate any liquidity concerns.
“It is a welcome move and certainly in terms of growing the size of the green bond market this is a landmark day,” said Eila Kreivi, head of capital markets at the European Investment Bank’s finance division.
“Germany’s decision to stagger the maturities of its green bond should help central banks and bank treasuries become more active in the green bond market,” said Tanguy Claquin, head of sustainable banking at Credit Agricole’s investment banking arm, which structured Germany’s bond.
Recently, the European Central Bank has allowed bond buying programme to pursue green objectives.
“Clearly, there was a segment of the market that was missing, which was the benchmark, short to mid-term maturities… an area where there is a large investor category that was not so active in the green bond space, which will now have more possibilities to enter the market,” said Claquin.
Previously euro zone issuers, including Netherlands and France, have focused on selling long-dated green bond of around 20 years and up-sizing it over the years.
Every time it sells a green bond in future, Germany will also increase the size of the conventional twin on its own books.
Investors are keenly watching how the two identical green bonds will fare compared to their conventional cousins.
The bonds were priced for a yield of -0.463%, which means investors paid a 1 basis point premium compared with their conventional twin. The development confirms expectations that investors hoping to bolster their green credentials will be paying premium for them.
Germany is aiming to raise up to 11 billion euros from green bonds in 2020 with a second one planned for later this year.
In the last three years, France has issued green bonds to the tune of 27 billion euros.