Stirred, Not Shaken

Image source: Chatham172 - Shutterstock

What's going on?

Europe issued its first-ever green bond to record demand on Tuesday, which makes you wonder if theres a more popular Bond in the world right now.

What does this mean?

Green bonds those used to raise money for environmentally friendly projects, like clean transport and energy-efficient buildings have been proving popular with an increasingly eco-minded investor base. In fact, the market grew by 95% a year between 2007 (the year the first green bond was issued) and the end of 2020, when the total amount raised also hit the $1 trillion mark.

The European Union (EU) has stayed out of the space until now, but that all changed when it issued $14 billion worth of green bonds on Tuesday. Trouble was, it completely underestimated demand, with investors putting in $156 billion worth of orders the most for green bonds ever. Sit tight, yall: the EUs planning to sell nearly $275 billion more over the next few years.

Why should I care?

The bigger picture: Money talks.
These green bonds are caught in a virtuous circle right now. See, high demand for the assets pushes up their price and drags down their yields, which subsequently brings down their interest rates. This, at a time when the equivalent traditional bonds yield and in turn interest rate is higher. That means issuers can raise funds for green projects much more cheaply than they can non-green projects, which incentivizes them to think more sustainably.

Zooming out: Green bonds have banks blessing.
Talk about the gift that keeps on giving: data from Bloomberg shows investment banks have earned $3.6 billion in fees this year from helping sell bonds advertised as green, social, or sustainable (tweet this). Compare that to the $1.6 billion theyve made doing the same thing for fossil fuel companies, and banks might be happy enough for this trend to keep accelerating.

Originally posted as part of the Finimize daily email.

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