Coronavirus crisis offers green and social bonds chance to prove their worth
Green bond issuance slows in market turmoil, while social bonds offer means to finance Covid-19 responses.
The ups and downs of green bond issuance
Green bonds have held up relatively well in the market turmoil of recent weeks.
The ICE BofA Green Bond Index lost 5% in total return between the end of February and March 20, while the broader ICE BofA Global Corporate Index was down 11%.
Much of this outperformance down to the defensive nature and higher ratings of the constituents of the Green Bond Index compared with its corporate counterpart: the former includes a significant number of industrials and utilities.
Unsurprisingly, UBS analyst Thomas Wacker says his team expects green bonds: “To exhibit lower volatility and smaller drawdowns compared to non-green bonds during periods of market stress.”
However, green bond issuance has been quieter due to market volatility. There has been a recent flurry of investment grade issuance from blue chip corporates such as PepsiCo and Unilever as firms try to lock in funding in anticipation of prolonged market disruption.